Ask the Expert: Savvy Homeowners Can Use Loans to Maximize Their Resources in Retirement

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Reverse mortgages are often thought of as a last-resort option for seniors who want to stay in their homes but have little resources and few options.

Research has proven otherwise. In recent years, a number of retirement experts and financial planners have extolled the ways a reverse mortgage can be used to generate a more positive financial outcome in retirement.

For the Reverse Mortgage to make the most sense, the borrower must be at least 62 and should be committed to remaining in the home for several years and ideally using the loan to age in place.

If this is the case, a reverse mortgage can be a beneficial financial planning tool for more well-off borrowers in many ways:

  1. No Monthly Payments: A borrower’s original mortgage balance must be paid when taking out a Reverse Mortgage, thereby eliminating their monthly mortgage payment and freeing up cash, which is clearly beneficial for a retiree living on a fixed income.
  2. Fund Your Expenses: Delay taking Social Security pay or long-term care. Delaying Social Security until age 70 maximizes the benefit one receives.
  3. Establish a Reverse Mortgage Line of Credit to Draw Upon When Needed: This is the strategy most often touted by retirement researchers. The idea is to use the credit line as a safety net in the event funds are needed for any reason in the future.

Using a reverse mortgage as a last resort offers the least benefit. Wade Pfau, a well-known retirement researcher and professor of Retirement Income at the American College of Financial Services, said “studies have proven that someone who ends up needing the loan as a last resort could have created a line of credit instead by setting up the reverse mortgage earlier in retirement and letting the line of credit grow until it is needed. This is why last-resort strategies end up looking the worst in financial planning research about reverse mortgages.”

The amount that a borrower can obtain from a Reverse Mortgage is based on a combination of home value and the borrowers age. Rather than making monthly payments, the interest on the funds advanced to the borrower accrue and is repaid when the borrower sells the home. If the borrower passes away, the heirs inherit the house and can sell it or refinance the loan and keep it. In either event, the borrower or their heirs retain ownership of the home and are entitled to the equity. Borrowers and their heirs are protected against the value of the home ever being less than the balance of the mortgage owed.

By Rick T. Cirelli

Rick T. Cirelli has more than 40 years of mortgage experience. For the past 18 years, he has owned and operated his own mortgage company – RTC Mortgage
Corporation – based in Laguna Beach. Rick can be reached at
rick@rtcmortgage.com.