Why do Financial Planners Recommend the Reverse Mortgage Line of Credit Over Traditional Home Equity Lines of Credit(HELOC)?
Lines of credit are great for folks who may need cash in the future, but don't necessarily need it immediately. A couple of benefits are the ability to immediately access money when needed and not being charged interest when the money hasn't been accessed.
But what about seniors who have similar needs? Is there a way to accentuate the positives of the line of credit?
OF COURSE THERE IS.
A Reverse Mortgage Line of Credit is a special way to structure a reverse mortgage. At face value, it is pretty much the cross between a reverse mortgage and a HELOC.
-The senior gets access to tax-free cash to use at his or her disposal.
-Title stays in the senior's name and heirs will inherit the home.
-The senior makes NO PAYMENTS on the funds that they take.
-If the funds are NOT taken NO INTEREST is charged(and of course no payments are made)
-Reverse Mortgages do not have balloon dates while HELOCs are typically called due within 10-15 years of the HELOC's inception. With a Reverse Mortgage Line of Credit money will never be due unless the senior permanently leaves the house.
Now that's the basic information, and it makes the Reverse Mortgage Line of Credit an excellent tool. But here's why financial planners love the Reverse Mortgage Line of Credit for retirement planning.
In addition to the features mentioned above, the funds available in the reverse mortgage line of credit are actually GUARANTEED TO GROW over the years. That growth is actually independent of home values as well, so if real estate values drop in a real estate crash(remember 2008??) the line of credit growth IS NOT IMPACTED. And since the growth rate follows the LIBOR interest rate(it actually outpaces it by over 1%) as interest rates rise(which is basically inevitable in today's economy) the senior's available funds will grow quicker and larger. Now finally, because this is a Reverse Mortgage and not interest, THE ADDITIONAL FUNDS ARE NOT TAXED.
WHY THE REVERSE MORTGAGE LINE OF CREDIT IS EXCELLENT FOR RETIREMENT PLANNING
Taking is a step further, this makes a Reverse Mortgage Line of Credit a super tool for retirement planning. It allows seniors to unlock an additional, guaranteed future cashflow stream that functions independently of the stock market or real estate market. Once set up, it will allow seniors to strategically halt the drawdown of their investments in a "down year", unlock a cashflow stream at any time, and NO FUNDS ARE EVER INVESTED. This is why CPAs, CFPs and financial planners who understand the program recommend it so highly.