Reverse Mortgages Leverage the Power of Compounding
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accurate as of
February 28, 2018
in Blog

Reverse Mortgages Leverage the Power of Compounding

Once you reach retirement, you will likely be living off of your assets, investments, and savings for the rest of your life. In an ideal world you will be able to use dividends and interest to cover your living expenses and never have to tap into your principle investments. However, very few people get to experience this ideal situation. A reverse mortgage may be able to help you leverage the power of compounding to maximize your investment returns.

In times when the market is high, it is not as detrimental to have to access your principle funds as when the market is low. You are selling high and making good money on your investments. But, if you are forced to sell when the market is down you may be taking a loss on your initial investment and it can be very difficult to recover your money.

Below is an example of what happens when a retiree has to sell off assets at a time when the market is low:

Jane needs $35,000 a year to live on. She has $875,000 in assets. According to financial experts at Business Insider, she is safe to draw 4% a year for 25 years to cover her living expenses.1 But, if the market crashes, and Jane’s investments decline by 20% in her first year of retirement, her $875,000 is now only $700,000. Once she takes out her $35,000 of living expenses, her assets will have decreased by 32% in her first year.

If Jane was able to cover her living expenses through other means, and not take out $35,000 when the market crashed, she would only be looking at a 25% reduction in her investments. While 25% may seem difficult to recover from, it is inarguably much easier than 32%.

The question remains, how will Jane avoid taking out the $35,000? Jane may be able to use a Reverse Mortgage to access a portion of her home equity as cash. This will allow her to live off of her home equity instead of having to access her financial assets when the market is down.

If you are a homeowner who 62 or older, you may be able to use a reverse mortgage to set up a line of credit that will allow you to access a portion of your home equity any time you need it. The line of credit will grow over time and interest will only accrue on withdrawn funds.2 Reverse mortgages do not require monthly payments and borrowers are able to stay in their home and maintain the title.3

To learn more about how a reverse mortgage may help you supplement your retirement income, contact a licensed loan advisor at 1 (800)976-6211 or click here  to request a no obligation consultation to discuss your options.

Important Disclosures:
1 Business Insider. Here’s How Much Money you need to Save to Retire on a Beach and Play Gold all day by Age 40. http://www.businessinsider.com/how-to-retire-by-40-2017-6

2 The reverse mortgage loan balance grows at the same rate as the available line of credit. Line of credit growth occurs and is only a benefit when a portion of the line of credit is not used. The unused line of credit grows over time and more funds become available during the life of the loan.

3 You will retain the title and ownership during the life of the loan, and you can sell your home at any time (at which time the loan becomes due). The loan will not become due and subject to repayment as long as you continue to meet loan obligations such as living in the home as your primary residence, maintaining the home according to the Federal Housing Administration (FHA) requirements, and paying property taxes and homeowners insurance. Failing to meet these requirements can trigger a loan default that may result in foreclosure.