How market volatility can renew the discussions about reverse mortgage
Recent market volatility and the HECM credit line
PFAU sat down with RMD to talk about the recent market volatility caused by broader discussions about rates, which the market sent earlier this week in a tail spider. Although most wider rates have since been delayed with at least 90 days, they have not all been canceled and the market responded lukewarm in active trade on Thursday.
But volatility is always a main concern for financial advisers, and when asked how this last match could relate to the initial market reaction on the early days of the COVID-19 Pandemie, PFAU said it was still a bit too early to say definitively. But every start of volatility will cause a reaction.
“It is always a matter of being retired, and suddenly the market had this withdrawal and you have to take a number of benefits to cover costs, be able to use something that is not exposed to that volatility, can really be useful to manage your investment performance in the long term,” he explained. “So that was the original justification for the [Home Equity Conversion Mortgage (HECM)] Portfolio coordination strategy. And indeed, I think it is still so logical today as at any time, nothing has really changed in that respect. “
In the early days of the Pandemie, PFAU spoke with several points of sale, including RMD, about the use of a reverse mortgage as a ‘bufferactive’. When the market drops, someone with a stand -by HECM line of credit can tap that source until the market stabilizes and then resumes investments at that time.
“I only looked at a simple rule that when you retire, the value of your investment assets will just record,” Pfau said this week. “And then from that point progress, if the current value of your investment assets is less than where you started, that would be the time to tap the HECM.”
HECM is more visible to 2025 pensioners
The solid market performance observed in 2023 and 2024 can, for some pensioners, the need to tap their HECM credit line at the immediate start of a volatility fight, he explained. That could have been the case for recent pensioners in particular, but for those who retired at the beginning of 2025, then someone in that situation may have reached a point faster on which a HECM made sense.
“In this type of interest rate environment you probably look around 40% of the home value, until the loan limit as an initial line of the main limit of the credit,” he said. “If you have a house that has value for it, it will certainly be enough to cover – as long as you are not too much of a saving – a few years in costs.”
Not all of that would be removed immediately, but the amount would probably be sufficient to cover a volatility period. In this case it would be certain that a sense of stability returned to the market as soon as the tariff delay for most countries was announced earlier this week.
But that is far from the only tool in the toolkit, Pfau said.
“A part of the reaction to this kind of market environment is that you are just a bit cut back on your expenses,” he said. “But insofar as you have to take distributions to cover your expenses, open the credit line on the HECM and currently use it as an alternative to distribute your portfolio.”
