A Reverse Mortgage Is Also a Tool Used By the Wealthy

In the last couple of months I haven’t spoken to anyone who knew a reverse mortgage should be considered by someone who owned their home outright, had no debt, and even had significant retirement cash flows. When I tell them the story of a millionaire client, and why he has one, they perk up.

Let me share a small part of the story of Rob (name changed), who owns retail stores that have made him an easy millionaire over the years. He approached me about a reverse mortgage a while back when his close friend, also a millionaire, told him that he had one. He wanted to understand it better because millionaires are savvy when it comes to building more wealth. His friend convinced him it was a no-brainer.

I asked him about the returns he gets on his many assets, after taxes and broker fees. His current portfolio did very well, netting about a 7% return. This sounded about right in the current markets, and it isn’t a bad return by any measure.

I then asked him what his home is worth. Surprisingly, he replied with savvy: “it’s not worth anything while I’m living in it.” He already knew where I was going. Indeed, a home is not worth anything by way of cash value until he sells it or dies. So while he’s living in it it’s simply an asset with ever increasing expenses – taxes, insurance, and maintenance.

He didn’t work hard to accumulate the value of that asset by hard-earned dollars, only to reap no reward for it in his retirement years. Instead, he wanted to establish a HECM Line of Credit and watch that line grow each month, guaranteed, without tax consequence, and without economic dependencies, and let the growth in the line cover the expenses of the home rather than pulling that from other better earning, taxable sources. In essence he wanted the home to pay for itself, not cost him more money.

At his age (63) and the value of his home ($1.0 million), he started with a $330,000 line of credit. At the end of the first year, the line of credit would grow at least $20,000, to nearly $350,000. He figured that if he paid his $7,000 in taxes and insurance, and some $8,000 in maintenance with the growth portion, he’d save around $15,000 a year that he didn’t need to draw from taxable, higher-earning assets. This means that his heirs would likely get a far greater asset from his ever-compounding stock portfolio, than simply from the value of the home after selling it. He’d also have monies from the line to do other things he wanted to do.

This is just one example of how one millionaire uses the HECM Line of Credit to build a better long-term portfolio and net worth to pass on to his family.

To learn more about the Growth Feature of a HECM line of credit, click here.