Surviving the Pandemic AND the Coming Recession: 5 Ways Home Equity Can Help You Thrive

Let’s face it, times are changing. The economy and financial markets have faced challenges and increased volatility.  In the past, financial professionals recommended using home equity as a last resort and letting the home appreciation just happen over time. However, for those who have 60% or more equity in their home, it should certainly be a consideration in a long-term retirement plan. Here are five ways home equity can help you thrive:

1. Improve the likelihood of funding your retirement lifestyle 

The worst scenario for a retiree is poor market returns in the early years of retirement. It’s known as Sequence of Returns Risk. If you must liquidate investments to fund living expenses during a down market, the chances of your investments recouping their value in retirement can be significantly diminished.

If stocks must be sold when the valuation is down, it can be dire for funding long term retirement plans. Withdrawing money at the beginning of retirement could have a dramatic effect on the viability of your plan, which is compounded by the need to sell at the bottom of a market cycle. A Home Equity Conversion Mortgage (HECM) line of credit may be the perfect standby to resolve sequencing risks.

Dr. Wade Pfau, professor of retirement income at the American College of Financial Services and founder of RetirementResearcher.com states, “in particular during today’s environment, helping to leave the portfolio alone and not spend from it after a market downturn and sourcing that spending from the reverse mortgage line of credit can help to preserve the investment portfolio, and to create long-term positive impact [safety] net as a piece of a reverse mortgage.”¹

2. Right-size/Relocate to another home

Many seniors are unaware that a HECM may be used to purchase a new residence. Are you considering an all-cash close to avoid monthly payments on a mortgage? Would you like to get more house than your all-cash availability can provide? Or, do you like the idea of only requiring a portion of your precious liquid funds to buy your new home and utilizing the rest to augment your long term retirement plan? The HECM may be the perfect vehicle.

Using a Reverse for Purchase financial product, you  can leverage the equity from your original house to get a more expensive home and have cash left over for your retirement plan, travel, pay for your grandchildren’s education, or anything you may need by simply getting a HECM for purchase.

3. Relieve Stress of Monthly Mortgage Payments 

For most homeowners, mortgage payments are the most significant monthly expenses, and most of the popular solutions for financing retirement, such as second mortgages, and home equity lines of credit are far down the list of wise-money decisions for seniors.

Why? All of them can cause detrimental stress in retirement with required future monthly payments due when you may least likely be able to afford it. With a reverse mortgage, no one is going to hassle you about monthly mortgage payments and your stress level as well as quality of life can be enhanced significantly.

4. Delay Starting Social Security Benefits

While Social Security seems complex, in general, understanding the differences in collecting at age 62, 66 ½ or 70 is relatively easy. If you are healthy and don’t require additional monthly income, it could be in your best interest to delay the benefit payments.

As a quick example of someone born in 1957, every year delayed collecting benefits past 62 translates to an increased benefit of about .667% monthly, or 8% per year. For instance, if a person at age 62 started accepting benefits, they may receive $1,450. At age 66 ½ they could receive about $2,000. At age 70, they could receive about $2,560 per month. Again, if you are healthy (working or not), it may make sense to delay your Social Security benefits to get an 8% increase in monthly benefits.

The solution? Why not utilize the HECM Line of Credit (LOC) and draw funds from the line when needed?  While you should always consult with your trusted advisor, in many cases it is worth delaying Social Security and collecting the increased amount available to you at a later age.

5. Protect and Preserve the Value of Your Home

Per Harvard.edu², historical data shows that the housing market crashes about every 18 years.² However, those figures do not account for significant interruptions, such as a global pandemic. Regardless, 18 years from the 2007-2008 crash puts the next bubble burst somewhere around 2025… if we are lucky.

With a reverse mortgage, your home value is locked-in at the time of the loan. The reverse mortgage is a non-recourse loan that neither you, nor your family, may ever have to worry about becoming a more significant personal burden even if the housing market drops in the future. The HECM LOC can never be frozen or called, without significant default of the loan terms caused by the borrower.³

As always, the above information is the tip of the iceberg in what you need to know about one of the safest government-insured loan products available. As with any financial instrument, you should always consult with a trusted financial professional and an experienced reverse mortgage originator.

Next step?

Want to know more than the five ways home equity can help you thrive? Simply reach out to us at Ridge Reverse and let’s discuss how we can help you with a product designed specifically to meet your needs for a lifetime of happiness… while enhancing long term cashflow and quality of life. Feel free to call, text (863-456-7810), or email richard.mcwhorter@ridgereverse.com and find out more.

Ridge Reverse, powered by Amerifund, provides an Equal Housing Opportunity. Information is subject to change without notice. This is not an offer for extension of credit or a commitment to secure a loan. Some restrictions may apply. This material is not from HUD or FHA and has not been approved by HUD or any government agency.

Richard W. McWhorter, NMLS 1618644, is an independent reverse mortgage specialist and can assist in your reverse mortgage needs in most states. Follow him on LinkedIn, the Ridge Reverse website or contact him directly at richard.mcwhorter@amerifund.com.