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Purchase Financial Assets
Purchase Financial Assets

Drawing cash in order to purchase financial assets is usually a bad idea, because it is seldom possible to earn a return in excess of the cost of the HECM except by taking considerable risk. The cost of funds is the HECM interest rate plus the FHA mortgage insurance premium. In 2013, even junk bonds were yielding less than the cost of a HECM.

There may be circumstances or situations where this use of HECM funds makes business sense, but few seniors are positioned to identify them. One exception could be the senior who has a thriving business with great promise that needs additional funding. If I had such a business and if it came down to using a HECM to keep it afloat or letting it die, I would probably use the HECM. But few seniors have thriving businesses.