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Equity release for risk reduction
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What's being discussed are standard UK-type equity release mortgages with variable drawdown facility.
That may be what's on your mind, but it's not what Pfau is discussing.In the US a high proportion of all mortgages are sold to state-governed buyers and this is just another one of those. They aren't supposed to be subsidising, just helping to make mortgage money available, though they do help to produce lower overall mortgage rates.
Oh come now. Politicians don't, on the whole, set up anything unless they can use it to buy votes using somebody else's money.
"help to produce lower overall mortgage rates" is effected how, precisely?The UK the equivalent wording for non-recourse is a no negative equity guarantee and that's now standard in the UK market. That protection is just built into the charging.
Good.though it's also done by limiting how much can be borrowed so there's a low chance of living to what could become negative equity, he mentions this with his "line-of-credit will grow throughout retirement" wording. The equity release drawing down doesn't sell an asset so it doesn't matter whether prices are temporarily down or not.
So the question does arise of how to time these transactions. I infer that your best bet is to arrange your line-of-credit when your house valuation is high, so as to maximise the amount they would be prepared to lend you. Then use it when you are reluctant to sell equities.If you want a rule you'd perhaps look at the cyclical P/E ratio. At the high use level you might consider using it for all drawings above natural yield whenever the P/E is below long term average by more than a fewe percent, to represent the cost of the interest.
I have the impression that equity release mortgages are rather expensive. Presumably, in a competitive market, that's just a reflection of the costs and risks for the provider?Free the dunston one next time too.0 -
That may be what's on your mind, but it's not what Pfau is discussing."help to produce lower overall mortgage rates" is effected how, precisely?So the question does arise of how to time these transactions. I infer that your best bet is to arrange your line-of-credit when your house valuation is high, so as to maximise the amount they would be prepared to lend you. Then use it when you are reluctant to sell equities.I have the impression that equity release mortgages are rather expensive. Presumably, in a competitive market, that's just a reflection of the costs and risks for the provider?0
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Knowing that markets have fallen is easy. No need to know when they are about to recover, just that mean reversion happens eventually. the studies don't include a predicting the future component.
Eventually, we're all dead. Someone taking on debt at retirement clearly is at much greater risk of not seeing that reversion to the mean if it happens at all.Not sure how competitive the market is but I have the same impression as you. Still, 6% a year interest for a while beats selling investments at a 20-40% loss.
It's easy to see when markets have fallen 20-40% and it's easy to see when they've fallen another 20-40% more. Much more difficult to make the call that -6% will be a better deal than selling.
I'd just put some consumption on a 0% credit card.0 -
Eventually, we're all dead. Someone taking on debt at retirement clearly is at much greater risk of not seeing that reversion to the mean if it happens at all.
It's easy to see when markets have fallen 20-40% and it's easy to see when they've fallen another 20-40% more. Much more difficult to make the call that -6% will be a better deal than selling.
I'd just put some consumption on a 0% credit card.
Or simply maintain a buffer of a couple of years cash and a few more years bonds or similar.0 -
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Interesting thread - at age 50 I am mainly living off of my savings but have final salary pensions due to start at age 60. Current savings are cash and share ISA's. At some point in the future I know that I will come into more cash but in the meantime cash will run out before 60 so well aware that I might be 'forced' into selling shares when market is low (we shall call that 'sod's law') so I've been juggling in my mind whether I might take pension at 55 or perhaps take equity release from property and just repay when cash becomes available (or stock market improves). As an aside I find it incredible that my stooze pot is averaging 1.4% (and has done for a few years) and yet equity release is still 6% - I'm keeping fingers crossed that this figure will reduce.0
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