Home Equity: A Strategy for Improving Cash Flow

j0403058After spending a lot of time talking with many financial advisors over the years, one of the key barriers that prevent them from looking into a reverse mortgage for their clients was the idea that they didn’t believe using home equity was a viable solution for financial planning, or more specifically improving cash flow. Specifically, the organization that moniters compliance for financial advisors (Financial Industry Regulation Authority) has kept a close watch on the industry and how they use home equity. It is my understanding that they are particularly interested in preventing the use of home equity funds for investments, which makes sense. With poor investment strategy, this could be a nightmare for all parties involved.

However, it is becoming more and more of an option today for many advisors to seriously consider the power of reverse mortgages as a method to provide the cash flow in longevity planning. Retirement is changing today. Many (including myself) are looking at the very real picture of “retirement” and realizing that we may need to reconsider how this time of life will really look. In all reality, the working years may be prolonged as the need for cash flow increases in light of the recent market deterioration.

Financial Planning magazine, in their May 2009 issue, has an article titled From Irrational Exuberance to Unreasonable FEAR. In the article, which is really a roundtable discussion among several financial advisors, they discuss how retirement is changing and how creative measures, including reverse mortgages, are certainly a viable option to consider when looking for cash flow during the retirement years.

It is my belief that reverse mortgages are at the cusp of entering into more of a mainstream product. Much different than the current “last resort” product.

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