How, when and why to take a reverse mortgage
More affluent retirees who have assets sufficient to carry them well past their expected life span may nevertheless feel uncomfortable about the possibility, however small, that they could run out if their life span is exceptionally long. A HECM credit line is the perfect insurance policy against that contingency because it grows over time and it costs a tiny fraction of what a life insurance policy offering the same cash draw would cost. In most cases, the line won't be used and the senior's equity in the house would go to his estate, but meanwhile he has peace of mind.
Note that a senior can combine a term annuity that defers the asset depletion period and a credit line that insures against the remaining small probability of running out of money if he is exceptionally long-lived.
The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.
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