Hi Stuart and Community, love the forum!
I am interested in modeling a reverse mortgage (HECM) and I see the payout options as lump sum, tenure and term.
I do not see a Line of Credit option, which to me is the most exciting aspect of a potential HECM because the money is available and if not used it grows at the interest rate of the loan + the Mortgage Insurance Premium amount (MIP) which is 0.50%. If there is not a plan to include this option already, you have my vote that it be added.
Overview of HECM LOC reverse mortgages: https://www.newretirement.com/retirement/what-is-a-reverse-mortgage-line-of-credit/
More detailed analysis with tables/spreadsheets/analysis: https://www.advisorperspectives.com/articles/2019/04/15/what-the-critics-get-wrong-about-reverse-mortgages
"The power of a reverse mortgage to help preserve an investment portfolio in retirement can be viewed in any number of ways. For instance, a reverse mortgage could be used to refinance a traditional mortgage to avoid making mortgage payments in the key early years of retirement; it could be used to build a bridge to support the delay of Social Security benefits without taking excess distributions from an investment portfolio; or it could be used to coordinate distributions from an investment portfolio to avoid creating greater pressure on the portfolio when markets are looking bleak.
I’ll show an example of the last point, as this is where most of the research about reverse mortgages has focused, starting with Barry and Stephen Sacks’ seminal article1 on reverse mortgages published in 2012."
Thank you,
Aubrey
Other good overview of HECM LOC reverse mortgage: https://retirementresearcher.com/how-does-the-line-of-credit-for-a-reverse-mortgage-work/
Hi Aubrey, thanks for sharing the references on the HECM LOC! As you've ascertained, these are not currently modeled in PRC; however, HELOC's are modeled in PRC2021 and you can find them on the Property expenses page. I understand that these LOC options have somewhat different characteristics but they're similar and the HELOC may get you close to where you want to be. The key thing with the HELOC (in PRC) is that the draw is strictly a function of your negative cash flows during the specified draw period (i.e., there will be no draw if there's no negative cash flow in the overall model), and the LOC doesn't earn any interest if no draws are taken. I think the HECM LOC may very well be a nice enhancement to add at some point in the future to continue to extend the functionality of PRC Gold, so I've added it to the list of candidate enhancements.
Beyond this, I'd like to solicit your thoughts on how well the current HELOC implementation meets or falls short of your needs for modeling a LOC in general. Thanks!
