“Would the Line of Credit ultimately be larger if opened earlier rather than later? We can further explore this question with a more realistic example.”
These are the opening lines from an article written by Wade Pfau that appeared on Forbes.com on January 23, 2019. Mr. Pfau is a Professor of Retirement Income at The American College and a Principal and Director for McLean Asset Management. His web-site is www.RetirementResearcher.com.
In the article he compares the growth rate of a Home Equity Conversion Mortgage (HECM) line of credit opened at age sixty-two and the amount that would be available at age ninety, to someone opening a HECM at age ninety.
In addition to having over $67,000 more money available, the person that opened the HECM line of credit at age 62 also has that line of credit available for emergencies or other uses over the 28 years to age ninety, compared to someone who waits until age ninety to open the line of credit.
He goes on to say, “The message from this example is that opening the line of credit earlier allows for greater availability of future credit relative to waiting until later in retirement.”
Of course, he backs up his calculations with graphs showing the results of his example and closes out the article by stating, “Line-of-credit growth may be viewed a bit like an unintended loophole that has been strengthened by our low-interest-rate environment. Further limitations on line-of-credit growth could potentially be created someday for newly issued loans. Until then, research points to this growth as a valuable way that reverse mortgages can contribute to a retirement-income plan.”
This is a very informative article for anyone working with clients to formulate a retirement-income plan.