HECM credit lines can help seniors deal with unexpected expenses

by Ryan Smith18 Oct 2016
A reverse mortgage is a way for seniors to supplement their retirement accounts – but it can also come in handy for covering expenses seniors otherwise might not be able to meet.

In an article for the Huffington Post, Wharton School’s professor emeritus of finance, Jack M. Guttentag, discussed how a reverse mortgage could help seniors deal with major repair expenses – and with the depletion of retirement savings by living too long.

“Expenses for (home or car repair) are seldom a surprise, but those who don’t prepare for them, or procrastinate in dealing with them, may be startled on the day the roof drip becomes a flood, or the cranky automobile engine won’t start at all,” Guttentag wrote.

In those cases, a HECM credit line can come to the rescue, he wrote. One advantage of a HECM credit line, he wrote, is that “the unused line grows at the interest rate on the reverse mortgage, currently 3-5%, whereas a cash fund will earn 1% or less.”

Outliving one’s retirement savings is also a concern facing many seniors, Guttentag wrote.

“The HECM credit line is the ideal vehicle for insuring against the risk of outliving your money,” he wrote. “…When the need arises, the senior can begin drawing on the credit line, or she can use the line to purchase a monthly tenure payment that will continue for as long as she lives in the house.”
 

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