Reverse Mortgage Blog

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Smoking in an Airplane: Time for Change and challenging the norm

October 3, 2018

In 1996 I backpacked around Europe following my graduation from college. This was an amazing experience and an eye opening opportunity for me to see a part of the world I had never seen before.

It is easy to say there are dramatic differences in the European lifestyle: the history, the food and culture. But one of the things I have found with travel is what I take away from these experiences in wisdom, perspective and how much I change in this process of discovery.

Simply put our experiences and education shape our vantage points and perspective.

I recall taking a flight from Spain to Italy during this time, a short 1-hour flight. I had requested a seat in the non-smoking section. Yes, during this time, just over twenty years ago, you could still smoke on airplanes in certain parts of the world. At some point back in the day people made the decision that smoking on a plane was acceptable and ok. In fact in Europe, during that time frame it was the norm.

My seat was in the row just in front of the smoking section; the smokers were seated to the rear of the plane. Why did the seating arrangements even matter when you are trapped in a fuselage with a ventilation system that naturally circulates airflow? Needless to say all passengers smoked that day in some way and it may have been healthier to actually light up rather than breathe a possibly more toxic second hand smoke.

Certainly today you would find this notion quite a ways from the norm. I bet some younger people would challenge that this story is even true. However, smoking in public places was the norm in 1996, the bank tellers once smoked at their teller windows, smoking in restaurants was common and sectioned off by seating arrangements, and outside the U.S. smoking in airplanes was still happening.

Needless to say times have changed. Somehow, somewhere people challenged the norm…it became a time for change.

 This story leads to me share some information regarding the HE-LOC and the RE-LOC. What is that exactly? HE-LOC- Home Equity Line of Credit or RE-LOC (Reverse Mortgage Line of Credit).

 

In the context of accessing home equity, specifically for older adults, lets discover if there is a time for change…

Traditional thinking in the financial planning world has suggested clients setup a HELOC (Home Equity Line of Credit) as a safety net to access capital quickly and easily in the event of an emergency or for financing maintenance needs on a home; new roof, windows, landscaping etc. Going back to the early 2000’s I recall speaking with advisors who suggested these lines of credit as a liquidity bucket for safety. It was a common and semi-reliable financial planning suggestion.

I would imagine some are still suggesting a HELOC to this day to their pre and post retiree clients. I often have clients ask me about whether to use a HELOC versus a RELOC and what are the advantages and disadvantages of both products.

Let us compare and contrast these two options.

Characteristics of a HE-LOC:

  1. Provides access to home equity that is easily accessible.
  2. A specified line amount is approved based on the clients’ ability to pay if the entire line is drawn out.
  3. Requires a minimum payment for 7-10 years, then amortizes to principle and interest for a period of 20 years.
  4. Can be cancelled, frozen or closed based on financial or real estate market condition changes.
  5. Access to capital is available only during the draw period of 7-10 years.

 

Characteristic of a RE-LOC:

  1. Provides access to home equity that is easily accessible.
  2. A specified line amount is approved based on the ability for the home to pay if the entire line is drawn out. Meaning home equity is the determination of the amount of access.
  3. Requires no payment until the client passes, or the house is sold.
  4. Cannot be cancelled or frozen regardless of financial or real estate market conditions.
  5. Access to capital is available for the life of the client or client’s.
  6. The line of credit grows and provides access to more capital that the initial specified line amount providing clients with more available money over time.

 

Many clients in retirement are free of mortgage obligations. We use the term; free and clear. Free of mortgage obligations, but clear from access to their equity.

There are a number of risks we face in retirement and there are several ways to mitigate these risks with the use of a RE-LOC. A growing reverse line of credit can be a very flexible and advantageous ways to access capital to protect against these retirement risk factors.

Common risks:

  1. Longevity risk
  2. Withdrawal risk (taking out too much from our savings)
  3. Market risk
  4. Health risk
  5. Long term care risk
  6. Home value risk

There are a number of others risks we should consider as we age into and throughout our retirement. What is the best way to protect and insure that we have or maintain a comfortable retirement? At the Wellspring Group we evaluate and help our client’s and their advisors discover and plan out the best ways to protect and mitigate financial concerns that arise when risks become reality.

We understand and challenge conventional thinking daily and will help you test whether the norms of home equity finance should be tested in your financial life.

 

For further information on this topic contact the Wellspring Group.

 

There is also a great article written in 2017 by Tom Davison on this same subject.

https://toolsforretirementplanning.com/2017/07/10/do-you-prefer-a-reloc-or-heloc/

Toney Sebra (CA) & Josh Blum (FL) profile picture
Toney Sebra (CA) & Josh Blum (FL)
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