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RMLOC, a non-recourse Reverse Mortgage Line of Credit, Can Provide Shelter During Market Storms for Bay Area homeowners

June 23, 2020

If you’re a retired homeowner, living in the expensive San Francisco Bay Area and recently watched the value of your stock investments plunge, you’re probably facing two difficult choices: 

  1. Live on less until the market recovers or 
  2. withdraw your usual amount, selling your stocks at a lower value, and further decimate your ailing retirement accounts, thereby lessening the number of years your investments will be there to support you.

Drawing from a securities portfolio during times of negative returns (falling stock values) is one of the greatest predictors that a retiree will run out of money during a projected 30-year retirement.

Think about it this way, if each of your stocks, or the stocks making up your mutual fund, is worth less today that it was a few months ago, then taking your usual annual draw means you will need to sell more shares of stock to obtain the same amount of money to cover your expenses.

Research demonstrates that selling stocks at low values substantially, especially in the early years of retirement, increases the probability you will run out of money later in retirement.

Think of it this way:

If you continue to make your usual withdrawals during market downturns, your savings decreases even more. So future earning power will be lower. This downward spiral is what can crush all the planning you have done to ensure a sustainable draw rate and dampen your retirement dreams at the same time.

The ideal course of action is to give your investment portfolio a break, time to recover, by reducing withdrawals. This is where access to a Line of Credit can help.

The problem is, when economic times are hard, banks stop issuing Home Equity Line of Credits (HELOC’s). And even if you manage to find a bank that is still issuing them, they are not a dependable source of cash flow.

For example, in June of 2008, U.S. Banks froze over 6 billion dollars of HELOC credit, without advance notice, and not based on the borrower’s ability to repay the funds. Not even based on the equity the borrower had. And not based on the borrower’s credit score. You see, the fastest way a bank can give their balance sheet a boost is to freeze open lines of credit. So, there is not much you can do to increase your chances that your HELOC will not be frozen when you need it most, to use as a BUFFER ASSET.

What is a BUFFER ASSET? 

A Buffer Asset is an asset that can help you buffer (protect against) market downturns, it is a source of cash flow for when you want to STOP drawing from a securities portfolio that is being Beaten up by the Bear.

So what CAN you do?

Well if you are age 62 or older, you may very likely qualify for a HUD-insured RMLOC (reverse mortgage line of credit), instead of a HELOC. Or if you live in an area of high value real estate, like San Francisco, Marin County or Silicon Valley, you may qualify for a Jumbo Conversion Mortgage.

According to Shelley Giordano, co-founder (with Torrey Larsen, president of Mutual of Omaha Mortgage) of the University of Illinois Academy for Home Equity in Financial Planning, a (RMLOC) reverse mortgage line of credit, allows homeowners to draw from a line of credit so they don’t have to tap more of their savings than is prudent. And since no monthly mortgage payments are required, your cash flow will be protected. You decide if you ever want to make a payment, or not.

At age 62, mature homeowners can receive a:

  • lump sum, 
  • fixed monthly payments “tenure” for their lifetime, or  a
  • line of credit to draw on as needed (unexpected expenses or bear markets)

All draws are *non-taxable, without restrictions on how you spend the money, and no monthly loan repayment is ever due as long as loan terms are satisfied.

In this transaction, homeowners are NOT selling their home to the lender — they retain ownership. The RMLOC is simply a loan and is federally guaranteed to be there when you need it most.

All reverse mortgages are non-recourse loans, and they are much easier to qualify for (than conventional loans) due to minimal income and credit requirements.

Why is this such an excellent solution for retirees and other Americans planning to retire soon?

* Consult a tax professional

Unlike a conventional mortgage, which requires monthly loan payments, these unique financing tools are designed specifically to improve cash flow for retirees. Hence, the loan balance on a reverse mortgage isn’t due until the last homeowner passes away, moves out of the home, or sells it.

These loan programs are nothing like the old Reverse Annuity Mortgages (RAM’s) that gave the program a black eye over a decade ago.

What we offer today, at Mutual of Omaha Reverse Mortgage, is one of the most flexible financial tools ever created as a conduit to using one’s largest retirement asset, Housing Wealth, to create sustainable tax-free cash flow throughout retirement, and to manage that cash flow wisely and prudently, even during the most tumultuous of economic times.

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Mary Jo Lafaye
Mary Jo Lafaye, Reverse Mortgage Consultant, NMLS# 246222 Mary Jo Lafaye is a licensed Home Equity Conversion Mortgage (HECM) Specialist with Retirement Funding Solutions. Mary Jo enjoys educating and working with mature homeowners, their families and their trusted advisors to secure long-term sustainable retirement solutions. She is also certified to offer complimentary one and two hour Continuing Education (CE) classes for CFPs, CPAs, and Realtors.
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Mary Jo Lafaye, Reverse Mortgage Consultant, NMLS# 246222 Mary Jo Lafaye is a licensed Home Equity Conversion Mortgage (HECM) Specialist with Retirement Funding Solutions. Mary Jo enjoys educating and...
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