Is reverse mortgage a good way to “lock in” property profits ?

[lewman]

If the objective is to lock in the gain but selling is not an option, what about entering into a reverse mortgage ? Presumably the assessed value is based on current price then capital gets freed at today’s “inflated” price but you don’t need to move out of the house.

I’m also thinking about taking out an equity loan, then investing the proceeds overseas (e.g. just stick the money into an everbank foreign currency account) as a way to play the falling USD theme. Basically a cheaper way to get margin financing. And, if the USD does end up falling, I can repay the loan with money left. What are equity loan rates like nowadays ? Are there equity loans you can get where you repay the loan in lumpsum after X years ?

[powayseller]

A loan officer should answer these questions for you. It all depends on your loan/equity ratio and your FICO score. I’ve not heard of a balloon HELOC.

HELOCs are higher now than first mortgages, so the trend in the last months has been for people to refinance, instead of taking out HELOCs, according to Frank Nothaft from Freddie Mac. They do this even though the new mortgage rate was higher than the previous rate for more than half the borrowers. I think the HELOC rate is around 9-11%. Maybe someone on this forum has one, and can tell you.

Even a reverse mortgage must be over 7%. How could you invest for more than 7% return, guaranteed?

Also be careful about borrowing against your home, which is losing value, to buy something which could also lose value. Margin loans are making a comeback, which is by some considered a sign of a top. UBS AG’s Wealth Management said that 75% of its $10 billion in securities-based loan are used for non-securities purchases such as real estate, cars, and paying taxes. Once again, people are borrowing against their equities. As stocks plummet, margin calls will hurt some investors. The big rise in hedge funds causes news and price changes to settle within hours instead of months. So when the market turns down, I think it will set off a wave of selling.

Glad to see you back in the forums, leung_lewis.

[PD]

Using your equity to finance investments overseas is dangerous. Hedging does not always work. Further, what you are talking about is not even a true hedge.

[sdrealtor]

With stellar credit, high ficos and plenty of equity you should be able to get Prime minus 1% on a HELOC.

[lewman]

The “invest overseas” and HELOC parts complicate things and took this discussion in a different direction than I intended. So let’s take them out of the equation.

What if it’s just purely a reverse mortgage, then let say money that comes out of it gets stashed in a low risk CD or t-bills etc. Do you think that’ll allow me to achieve my goal of “locking the profits in without selling the property or moving out” ?

Has anyone done a reverse mortgage or is in the process of doing one here ?

And powayseller thanks for the “welcome back”. Actually I was never totally away; it’s just that I’m 12 hours behind so makes it hard to follow some of the discussions. Enjoy your posts btw and am amazed by how you can recall figures and facts 🙂

[powayseller]

I would be surprised if you can do a carry trade like that at a profit. A mortgage rate is higher than a Tbill rate, I’m pretty sure of that. Why don’t you just call a mortgage broker, and get the info? Call any bank, or fill out an online loan ap. The rates really do depend on your FICO and loan/equity ratio.

[SDbear]

Powayseller is right. At any given time mortgage rates would be higher than the TBill returns.
But if you are speculating on the interest rates to rise and lock in a fixed rate mortgage; in certain Tax situations you could use the spread to advantage. But there is always interest rate risk.
I have’nt done that on a mortgage, but on my car purchase. I had a low interest offer and at that time returns on low risk CDs and TBills were lower than the interest. Although I could have easily paid off the loan then, I took the interest hit and am now getting good returns on the loan amount. But if the interest rates had stayed in the bottom, I would have been losing money on all the interest payments.

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