With markets volatile and housing hot, reverse mortgages are attractive to retirees looking for cash while staying in their homes.
Reverse mortgages have developed a strong following in the financial planning profession, with advisors like Pfau recommending them as a potentially useful option in retirement distribution management.
The idea is that even if you don't need cash immediately, setting up a line of credit through a reverse mortgage on good terms can provide access to significant funds down the road. The line of credit will continue to grow at the rate of the reverse mortgage's interest rate, regardless of what happens to the value of the home. In other words, a reverse mortgage hedges the risk of falling home prices.
Not all advisors are sold on reverse mortgages. Certified financial planner Howard Hook, a senior wealth advisor with EKS Associates in Princeton, New Jersey, has only spoken to two clients about the reverse mortgage option with one ultimately getting a loan.
If you use the proceeds of a reverse mortgage for questionable spending or risky investing, you're setting yourself up for financial ruin. If it represents a last resort for funds, you are probably living an unsustainable lifestyle."The better option is to downsize your home and reduce your spending," said Hook of EKS Associates.
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