How a Reverse Mortgage Loan Could Help Protect You and Your Home in Uncertain Times
Can you protect something? Maybe your home?
Do you remember in 2008 what had happened before and after the housing market bubble? The market was going up, home values were increasing, and we had low unemployment rates before the bubble crashed. Before the crash, when houses in larger cities went up for sale, a few hours later, it would have multiple offers over the asking price. Then shortly after the housing bubble crashed, home values had started to drop, and the time frame for selling homes became much longer. After the bubble, the Home Affordable Refinance Program (HARP) became a popular loan option because a lot of people owed more on the mortgage than what they were worth from the home’s declining values.
Fast-forward to today, where you see more and more seniors continue to stay in their homes longer, and starter homes are getting harder and harder to find. Millennials are looking to buy starter homes, and the supply for entry-level homes is going down. Prices and demand for entry-level homes for the past few years have been significantly increasing.
Before Covid-19, the market was going up, home values were increasing, and we had low unemployment rates. According to thebalance.com, the unemployment rate for 2019 was at 3.5%, which the last time we had seen rates that low was since 1969 when Nixon took office and just before the mild 1969-1970 Recession. Do you believe history tends to repeat itself, and all ships rise or fall with the tide? Are you concerned about your home values going down just like the stock market has decreased recently?
There is a lot of worry and fear being caused currently from the Covid-19 virus in the news lately. For some, the market’s recent downswing of 30% in their retirement funds is causing even more fear. We are all hoping this will be a fast rebound like the 1969-70 mild recession, like a rubber band pulled back, testing its limits, and shooting forward with a stronger force behind it. Hopefully, it will not take several years, like the 2008 housing bubble, took to recover. The question is, what can you do about it, so you’re not just sitting and hoping things change. If you’re62 or older with some equity in your home, you may have the ability to use a reverse mortgage loan.
Here are some reasons why I believe a reverse mortgage loan is going to become a popular loan option like the HARP loan was after the 2008 bubble.
1. Are their better places to pull your money from besides your 401k accounts?
There have been many studies done that show it’s better for your portfolio’s survivability if you pull the money from a growing reverse mortgage line of credit in market downswings than from your investments.
Are you currently using your home equity to potentially strengthen your portfolio? Are you presently pulling money out of investments? Wouldn’t it be beneficial to have the funds come out of another source of funds rather than what you have in the stock market now*? If not your home, where else are you going to get the funds to meet the cash flow you need? The interest rate on a reverse mortgage loan is pretty low right now. Wouldn’t you rather leverage your available assets than ignore them to prevent you from having to sell your investments?
2. Are you concerned about your home values going down?
A reverse mortgage loan is a non-recourse loan. The definition from Investopedia for Non–recourse debt is a type of loan secured by collateral, which is usually property. If the borrower defaults, the issuer can seize the collateral but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount.
So if you are concerned about home values going down as they did after the 2008 housing bubble a reverse mortgage loan would be a good loan to consider. If your home value drops, the lender is not able to request their funds back that they already borrowed you.
3. What could the benefits of having additional cash flow be?
One of the first things said about reverse mortgage loans in most advertisements is no monthly mortgage payments except for taxes, insurance, and maintenance. In times of fear and concern tend to be the best time to have additional cash flow. The best time to help people is highest when there is a need when people are struggling. You can use the additional cash flow to help your loved ones who may be struggling with recently becoming unemployed and struggling to keep up with life essentials as buying food. If home prices, the market, and other items continue to lower in price, you can use the additional cash flow to purchase things at discounted prices. Whatever the reason is, I’ve never heard anybody complain about having additional cash flow.
Learn More About Reverse Mortgages
It’s often wise to take the time to learn something new, and it doesn’t pay to wait. Ask a local reverse mortgage planner to help you understand the facts and features of a reverse mortgage loan. There are different types of reverse mortgage loans offered by Fairway Reverse Mortgage that can fit your situation, such as a Home Equity Line of Credit (HECM), a Reverse for Purchase (H4P), a Jumbo Reverse Mortgage.
Interested in more research on reverse mortgages? Industry expert Harlan Accola wrote a free book on how to use home equity to enjoy retirement.
*This advertisement is not tax or financial advice. You should consult a tax and/or financial advisor for your specific situation.
April 3, 2020