Mark D. Kemp, president of Kemp & Associates Retirement Services in Harleysville, Penn., agrees. “I see a bigger issue here than borrowing against a house,” says Kemp. “It is indicative of not saving enough. If a person had a rainy day fund or money elsewhere, he would not tap into home equity. Borrowing against the home shows the person is living beyond their means.
“We are staring down the barrel of the perfect storm financially, if I can mix my metaphors,” he adds. “You have the longevity issue, the stock market volatility, inflationary risks for medical care and the lack of rainy day funds. If you are a financial planner, it is a great time to be in business.”
However, borrowing against the home is not always done as a last resort, according to Robert Klein, founder of Retirement Income Center, a registered investment advisor in Newport Beach, Calif.
Borrowing against a home at today’s low interest rates and investing the money in something that yields higher interest could result in a profit, he says.
“The other thing that comes into play is the current popularity of reverse mortgages. A reverse mortgage could be tapped into at an opportune time instead of raiding the portfolio when the market is down,” Klein says.
The key to borrowing wisely is planning for retirement when you won’t have a steady income to pay it back, he adds.