My Comments: if you follow my blog posts, you’ll have noticed I often talk on Fridays about reverse mortgages and their association with financial freedom in retirement.
A prominent thought leader in this arena is Don Graves. What appears here are comments and a chart he will use when speaking in Indianapolis today, May 13th. Here are some of what he’ll say and the chart he uses to reflect a Line of Credit (LOC) that someone can access simply by using their home equity as collateral.
Keep in mind if you use some of that line of credit to help pay bills in retirement, there is no need to pay it back until you and/or your spouse stop living in the home used to collateralize the line of credit.
Here’s is what he said to me via email this morning:
I have to admit, that a year ago I did not fully recognize how challenging inflation was going to be or how long it was going to stay. But I did understand one thing: Retirees could tap into their dramatically appreciating home values to create a tax-free reserve that could at least serve as a type of hedge.
Understanding the Chart
Today’s reverse mortgage initial benefit amount is based on:
- The age of the youngest borrower (at least one as to be 62)
- The value of the home
- The long-term interest rate (10-year treasury)
Below is a 65-year-old couple living in a $550,000 home with no outstanding loans against it. The reverse mortgage makes an initial line of credit available of around $224,000.
- Column A shows that line of credit growing (5-6% today). The FHA insured reverse mortgage has a built in, increasing credit line that cannot be frozen, cancelled or reduced because of underlying economic factors. The proceeds when drawn are Non-Taxable and there is no required monthly payment.
- Column B shows how much money can be advanced to the borrower per month in any year they may choose to “annuitize” the line of credit.
- Column C shows the same, but with advanced being stopped at 5 years.