It’s no secret that the markets have tanked. Many of us have seen the graph showing the history of the stock market. You know the one where the market tanked, and then the market came back, and then the market tanked, and then the market came back. I guess what that chart is supposed to do is make you feel hopeful that, if you have money in the market, don’t worry, the market always comes back. History seems to support the “market always comes back” hypothesis, but from an individual perspective, we must ask ourselves—Is that relevant?
When my kids ask for something, or bring something up to me and my wife, depending on where we are, we always tell them, “Happy to address your concern, but remember: TIME AND PLACE! (FYI, that doesn’t mean they always listen.)
What does that mean? It means that we can discuss what you want at the proper time, and in the proper place. When you are looking to retire it becomes important to remember “Time and Place.” What this means is—TIME: That if you are young, that you have, by the grace of God, a long life, or longer life to wait until the market comes back from being down, and … PLACE: Your placement, your stage in life, determines the decisions you need to make now taking into consideration the risk/reward factor. Basically, what I have to say about the market history graph is—Graphs Shmafs! Because their relevance is really based on your time and place in life.
The thing is that, if we all live forever, then the graph may be relevant, but we don’t!
Let’s focus on the 60-plus age group, because their chance of recovery within this market is possible, but may not be guaranteed in enough time for them to retire—and nobody has a crystal ball. If you have money in securities, and now they’re down, and you need to sell off because you need the money, you’re going to pay taxes on that money, and that hurts. It also means you don’t have those securities anymore to give you the opportunity to wait for the possibility of them coming back.
How can you shoot for the recapture of potential wealth? What are reasonable options when a down market presents itself? Well, one option is to cash out on your property, via mortgage financing, tax-free, hold the money, and pay that money back monthly until the market recovers. If you have commercial properties, then those properties should pay back that loan for you. If you have an owner-occupied property, you’re going to have to make the mortgage payment and hopefully you have the income to do so until the market recovers. Another choice is to get a home equity line, in which case that money would be tax-free, but you must pay that back monthly as well.
One of the best options that allows for a “sequence of returns” for the right situation is known as a reverse mortgage. There are government products and proprietary portfolio products, and you don’t have to be 62 years of age. This can be a fantastic tool as a bridge loan, life loan, aging in place loan, starting a new business loan because you don’t have to make monthly payments on it, and because of that you get money tax-free, which allows you to bide time until your portfolio can come back or until your investments pay off.
You can always pay back into a reverse mortgage loan, and if you have a home equity conversion mortgage (HECM), you can still have access to the line. There are at least three types of reverse mortgage loans with different structures and advantages for the right borrower. This is an article to make you aware of what is possible, and so I will not go into the specific mechanics of the reverse mortgage. The key takeaways are:
1. You can borrow on a reverse mortgage loan and make no monthly payments
2. Depending on the product, the loan has an increase factor whereby the actual cash availability and access can have line growth
3. You can design the payment structure, consolidate debt, and age in place, take advantage of investment opportunities, and the list goes on.
Borrowers still own their home. (If you’ve heard anything else it’s an old wives’ tale.) What do you trade for all the above advantages? The mortgage increases as time goes on, and so you owe more than you borrowed, but the trade-off is no monthly payments. Proper analyses matched with strategy and goals is the key.
Carl E. Guzman, CPA, is the president and founder of Greenback Capital Mortgage Corp., a mortgage broker/banker in New York, New Jersey, and Florida, celebrating over 32 years of assisting borrowers with their financing needs. He is also the founder of MortgageGenius.com the place to go for an objective second opinion. He is a CPA by training and a Licensed Real Estate Broker in New York and New Jersey specializing in complex residential and commercial mortgage solutions.
