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#70 Reverse Mortgage as a factor in portfolio planning


David Garrison
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]

2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894

February 10th, 2022

The two of you have always agreed on a conservative approach to investing, more or less following the traditional 60/40 mix of stocks and fixed dollar investments. Conservative about money matters in general, you have zero revolving debt. In fact, having decided to remain in your home, you are mere months away from paying off the mortgage. As recent retirees, you have updated your insurance (including long-term care) and have received your first social security checks, which, combined with your respective pension income, should be sufficient to cover your lifestyle needs for at least the near term without tapping any of the portfolio assets. 

While in general, you’re confident that you’ve planned well for retirement, you are concerned about two current trends – the big jump in everyday costs of living, and the rise in interest rates (with the Fed talking of increases to come). You’re worried about your bond holdings, understanding that when interest rates increase, that will force bond prices down. You realize that the yields on other types of fixed dollar investments such as CDs and fixed annuities will do a poor job at keeping up with inflation. In contrast, your stocks and stock funds (not withstanding some recent drops in value) have appreciated beyond your wildest expectations, but you don’t want total exposure to equities. You’ve been reading predictions from different “gurus” and are in a quandary about next steps. 

A reverse mortgage on your home might provide a long-term solution, allowing you to earn interest on the un-borrowed portion of the Home Equity Conversion Mortgage available line of credit. That resource could take the place of your “fixed-dollar” portfolio allocation, with the credit line growing at the same rate at which the loan interest would accrue if you tapped the line of credit. And, unlike the bonds in your portfolio, rising interest rates will serve as a positive, helping to grow your line of credit without a concurrent loss of principal value.

In a sense, while still following the 60/40 model, you could use a reverse mortgage line of credit to replace the 40%!