https://podcasts.apple.com/us/podcast/t ... 0660217081
I found this pretty interesting. Reversing mortgages is an area I know little about other than people seem to be leery of them. They made some interesting cases how they can be useful.
Of course there is the primary case people think about where you don’t have enough to retire on so you take out a reverse mortgage. There are risks there, but for those people there may be little choice.
But the conversation here was about people who take them out, for financial planning purposes, but don’t necessarily need to.
The benefits I gathered listening:
- By having the additional liquidity, or access to the liquidity, you could hedge against undesirable sequence of return risks in early retirement.
- They can be set up essentially like a HELOC if needed, with the amount you can borrow that grows through time
- It could be a way to provide liquidity to avoid selling highly appreciated assets, such as your home or highly appreciated stocks - deferring for eventual step up
- if one so chose you may choose to take money out and invest it in the hopes of leaving a larger inheritance to heirs. Obviously this isn’t risk free, but this isn’t something somebody would likely be doing with assets needed during retirement.
- Rates are higher than they were, but you can refinance if rates fall significantly.
Seems to me the biggest downsides are upfront fees - the biggest of which is an approx 2% of home value up front. That is a non trivial amount but it is used to make sure the mortgage is non recourse - in the unlikely event the eventual mortgage exceeded the home value. Basically an insurance of sorts, so it isn’t exactly a pure fee of which you derive no value.
Thoughts?
I found this pretty interesting. Reversing mortgages is an area I know little about other than people seem to be leery of them. They made some interesting cases how they can be useful.
Of course there is the primary case people think about where you don’t have enough to retire on so you take out a reverse mortgage. There are risks there, but for those people there may be little choice.
But the conversation here was about people who take them out, for financial planning purposes, but don’t necessarily need to.
The benefits I gathered listening:
- By having the additional liquidity, or access to the liquidity, you could hedge against undesirable sequence of return risks in early retirement.
- They can be set up essentially like a HELOC if needed, with the amount you can borrow that grows through time
- It could be a way to provide liquidity to avoid selling highly appreciated assets, such as your home or highly appreciated stocks - deferring for eventual step up
- if one so chose you may choose to take money out and invest it in the hopes of leaving a larger inheritance to heirs. Obviously this isn’t risk free, but this isn’t something somebody would likely be doing with assets needed during retirement.
- Rates are higher than they were, but you can refinance if rates fall significantly.
Seems to me the biggest downsides are upfront fees - the biggest of which is an approx 2% of home value up front. That is a non trivial amount but it is used to make sure the mortgage is non recourse - in the unlikely event the eventual mortgage exceeded the home value. Basically an insurance of sorts, so it isn’t exactly a pure fee of which you derive no value.
Thoughts?
Statistics: Posted by JBTX — Wed Jun 26, 2024 10:31 pm — Replies 0 — Views 94