Can I Take Out A Reverse Mortgage And Invest That Money?

A Client Asked Time Magazine this Question In June 2015

Can I Take Out A Reverse Mortgage And Invest That Money?

Asked a Time Magazine Reader in June 2015.  See Full Time Article HERE .  My Short answer is YES:

If your Advisor wants to lose their licenses, have an NSA drone hoover outside his window and become the poster child for the new pilot of American Greed.

Here is the Actual Question:

Dear Time Magazine: Can I take out a reverse mortgage and invest that money in an account that would pay a decent rate of return? My home is paid off and the equity is just sitting there drawing no return. If repay the loan in 10 or 20 years with the money I invested, would I come out ahead? – Stan L.

Time Magazines Answer: In theory it sounds good, but to get the kind of return you’d need to make it worth doing, you’d have to take on a fair amount of risk. “You don’t want to gamble with your home equity,” says Tom Mingone, founder and managing partner of Capital Management Group of New York.

Here’s My Long Answer

Dear Stan, I have a few quick questions:

Did Your Advisor Suggest This Strategy?

If so, I would strongly consider getting another advisor. In the olden days (as this 2005 Wall street Journal article implies) “Taking Out a Mortgage To Buy Stocks Isn’t Quite As Crazy as It Sounds” may have been reasonable to some investors. But what investors. Buffet, Gates etc.

But to the average retired or soon to be retired investor, this strategy has always been bad news. Especially if Housing Wealth represents a substantial part of their wealth.  Taking money out of a asset that can lose value (i.e. 2008 housing crash) and putting into something that can lose value (i.e. 2008 market crash) puts your entire retirement at risk.

Since 2008, I don’t know any advisor who would even dare recommend a strategy like this. So as I said earlier, if they did, please consider expanding your options.

Have You Considered The Merits Of A HECM Standby Line Of Credit?

Here is a safe way for you to convert around 50% of your homes equity and turn it into a line of credit.  But with some considerable differences.  Let me outline just a few:

  • It has a built in, guaranteed Cost of Living adjustment! That’s right.  A HECM line of credit (should you qualify) has a guaranteed growth rate (see video) Irregardless of the homes value.  So you can turn a $500,000 home into a $250,000 line of credit with a minimum growth rate today of 4.25%  . See Dr. Wade Pfau’s article about The Hidden Value of a Reverse Mortgage Standby Line of Credit

  • It cannot be frozen, canceled or reduced
  • It can be repaid.  Some people treat it as a revolving line of credit. Repaying it from others resources or even RMD’s that they did not need to use.

(Here’s a line of credit growth example from a few years back with less money available)

Stan, most retirees and prudent advisors believe that a Standby HECM line of credit is the best use of housing wealth happening today. It’s safe, easily accessible, cannot be lost and has guaranteed growth.

That truly in a win/win

Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®
Don Graves, RICP® is a Retirement Income Certified Professional and one of the Nation’s Leading Educators on the Emerging Role of Reverse Mortgages in Retirement Income Planning. He is president and founder of the HECM Institute for Housing Wealth Studies and an adjunct professor of Retirement Income at The American College of Financial Services. He has helped tens of thousands of Advisors as well as more than 3,000 personal clients since the year 2000
Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®
Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®

Categories: Advisors, AskDonGraves, Common Usages, Financial, Strategic Usage, Topics

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