By Matt Allen
The information provided in this article is intended to give a general overview of the topic and is not intended as legal advice. For information specific to your situation, please talk with your reverse loan mortgage professional.
Article #4, Why You Should Get A Reverse Mortgage Line Of Credit Now
One of the most common beliefs about a reverse mortgage is that you should get one only if you really need it and only as a last resort. I personally hear this belief all the time from financial advisors, CPA’s, attorney’s and other trusted advisors and it is quite pervasive in the media as well. The good news is that the media and trusted advisors are starting to change their minds about how and when a reverse mortgage should be implemented. In this article, we will cover just one of these options; the line of credit, the benefits it can provide and why you should get one early on.
For many seniors, their largest asset is the equity in their home. The problem with home equity is that it is illiquid and difficult to utilize. In fact, the only way to gain access to the home’s equity is to either borrow against it or sell the home. This is where the reverse mortgage line of credit comes into play; it creates liquidity in your homes equity.
What is really exciting about a reverse mortgage line of credit is that it goes beyond just creating liquidity in the home. It creates a liquid asset that grows in value. The unused portion of the line of credit grows in value at the current interest rate, plus 1.25%. For example, if the interest rate was 4%, the unused portion of the credit line would have a growth rate of 5.25%. The line of credit is kind of like a secondary investment portfolio that continuously grows in value and only goes down in value when you use it.
The growth of the line of credit is why it makes sense to get a reverse mortgage early, instead of waiting. In fact, research has shown, given our currently low interest rate environment, if a person owned their home free and clear and got a reverse mortgage today, at age 62, and never used the line of credit, there is a high chance the credit line could be worth more than the home in the future. At the age of 82, there would be a 50% chance the line of credit would be worth more than the home and at age 86, there is a 90% chance of that happening.
Another exciting feature of the line of credit, is that all or a portion of it, can be converted into monthly payments, lifetime or term, at any time in the future. This can be especially useful if other sources of income have been lost or depleted, or additional income is needed to maintain your current lifestyle.
The reasons to get a reverse mortgage line of credit are as varied as those that are getting them. Some people look at it as a cheap insurance policy; others like the comfort of knowing they have access to liquid cash and others see it as a way to avoid using credit cards when large unexpected expenses arise. The reality is that smart seniors from all walks of life, from millionaires to those living on just social security, are getting reverse mortgage lines of credit early, instead of waiting and using them as a last resort.