Ask Bob: Is a Line of Credit or a Reverse Mortgage Better?

Question: My parents, who are both 75, recently lost $5,000 in monthly income and now can't make their monthly mortgage payments. They are considering selling the house they love where most of their assets reside (70%), with 30% in retirement equities. They want to have time to pick out a smaller new place and believe they need to find a way to stay in their home for this year or so. They have a line of credit with a 4% rate and they could use this line of credit (I believe) to cover their expenses for this year or so. They say a real estate agent suggested using a reverse mortgage to supplement their expenses for this year or so. This seems to be the direction they are going, and I am concerned. The reverse mortgage seems a more complicated and expensive option for a year or so of living expense supplementation.

Answer: It's certainly generally accepted wisdom that a reverse mortgage is too costly for a short-term loan, says Barry Sacks, a lawyer and reverse mortgage expert.

If you are confident that your parents can get the large current home sold within a year or two, the line of credit is better than a reverse mortgage, says Sacks. "And, if they do succeed in selling the current home, they could then get a 'HECM for Purchase' on the subsequent -- and presumably downsized -- home."

To give a longer answer, Sacks says it would be helpful to have the value of the current home, the amount of the mortgage against it, the monthly payments, and, if available, the amount they are spending each month and the amount of retirement equities.

But here are more information and resources on this topic:

Reversing the Conventional Wisdom: Using Home Equity to Supplement Retirement Income by Sacks

Using Reverse Mortgages to Mitigate Periods of Poor Returns by Wade Pfau


Using a Reverse Mortgage to Buy a Home; A Toolkit for Real Estate Agents

HECM For Purchase: Using a Reverse Mortgage to Buy a New Home

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