While I agree that a reverse mortgage is not right for everyone, I also see evidence that only a small number of homeowners trust them or the potential opportunities they create. Not everyone uses them to pay off bills or help out a friend. I have recently had reverse mortgage clients use the proceeds of their loans to diversify into gold, annuities and bargain-priced real estate. Whatever the outcome of those investments may be, the one principle that I understand and respect that is being followed here is diversification.
While some may say that to borrower and invest is not right, others will use leverage from margin accounts or short selling which is also borrowing and investing and usually for the purposes of hedging or timing another investment opportunity.
Perhaps you have had the opportunity to cash out some of your home’s equity at a time when that equity was at a surplus or your portfolio was real estate heavy. Well, you did have that opportunity but you just didn’t know enough or trust enough about the damn reverse mortgages. Especially since it’s an exotic mortgage product and you’ll have to talk to a loan officer to get one. And then there are the interest rate and all the fees. It just sounds like a hassle and that makes for a long list of excuses why you shouldn’t do it or anything like it.
I hear about it day after day, how that was the time to cash out the equity but people felt more secure leaving it in place, in their homes back then. It just goes to show you, too much of anything never turns out to be a good thing. And then there are the investment advisors that all said they would NEVER advise anyone to borrow against their homes, well, the stock market didn’t offer any refuge either, did it? No, the smart money already borrowed against the inflated values of late and probably bought gold or stayed in cash.
This article isn’t for the purpose of comparing one investment to another or even if reverse mortgage or home equity loan proceeds should be used for investing. It is merely a discussion about options and diversification. Some people see the value in these methods and others never will. For instance, had you borrowed against your home and purchased life insurance, upon your death your heirs would inherit a tax free, cash, death benefit rather than a taxable piece of property.
You can’t tell anyone what to do with their money. If they want to spend it all on QVC or slot machines, it’s really their prerogative. I have had many a client purchase solid investments with their reverse mortgage proceeds and I have seen one guy go out and burn it all up in a day on a new Lexus. The vast majority are a responsible bunch, though and spend time researching and shopping around like they should. So why should anyone tell them they shouldn’t expose the money to market or interest rate risk? After all, the housing market has been posting negative returns just like other investments for the last few years. So what is the difference if the money is kept in the home as equity or locked up in a guaranteed annuity. Probably the fact that the annuity is guaranteed and the home equity is not. That’s besides the point, a well diversified investment portfolio is the best way to weather any storm while still having ample opportunities for growth and income. A reverse mortgage is an excellent way to balance your portfolio and for most of us, it’s a way to have more opportunities to diversify into areas like commodities, income producing property and a whole host of smart investment ideas.
Michael Manfredi is a Reverse Mortgage Specialist
Reverse Mortgage Concepts
Phoenix, AZ 85020
(602) 456-0009
(888) 697-5556
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