FJY has recently started to recommend reverse mortgages, specifically Home Equity Conversion Mortgage (HECM) Lines of Credit and Purchase Mortgages to clients age 62 and older in the appropriate circumstances. HECMs provide a source of cash to help homeowners defer social security benefits, fund an unexpected expenditure, purchase real estate without a contingent-on-sale clause, pay off an existing mortgage, and provide an alternative to portfolio withdrawals during a downturn in the capital markets.
For those 62 and older, a HECM has features that a traditional Home Equity Line of Credit (HELOC) does not have: first, no repayment is required as long as the homeowner lives in the home and pays the real estate taxes, etc.; second, the HECM line of credit grows regardless of the growth in the value of the home; and third, the HECM line of credit cannot be frozen, reduced or canceled as long as the terms of the loan are met.
Tom Davison, a colleague of ours, has written an excellent article on his blog entitled “Strategic Uses of Reverse Mortgages for Affluent Clients.” Read more here.