Financial Planner: Extend Life of Investment Funds with Reverse Mortgage Equity

Seniors looking to tap into their homes for cash should consider a reverse mortgage, which can be used as an “emergency reserve” when investments aren’t doing so well, a financial planner advises in an article contained in the AARP magazine .

The introduction of the HECM Saver program, which significantly reduces the upfront costs of originating a loan, is viewed by financial planner Harold Evensky of Evensky & Katz Wealth as “a partial replacement” for a financial tool he recommends to retirees, a $100,000 cash reserve that can be used for monthly expenses rather than spending down investment funds in poor markets.

Most people can’t set aside that much cash, says the article, so getting a HECM Saver as what Evensky calls a “standby reverse mortgage” can be an alternative.


“We can reduce the client’s emergency reserve to six months,” he says in the article. “If that runs out, you simply tap the reverse and pay it back when things get better.”

When used in such a manner, a reverse mortgage can help an investment portfolio “last 20% to 60% longer in retirement, depending on the scenario specifics,” according to Evensky’s research team.

Evensky has co-authored forth-coming research on using a Saver in conjunction with investment funds to finance retirement.

While AARP mentions a home equity line of credit as an alternative to a reverse mortgage, it points out that they’re usually not as helpful to seniors because it’s not as easy for retirees to qualify for them unless they have significant sources of regular income, and they’re still required to make ongoing monthly payments to the lender.

The article also gives three other ways for homeowners to get cash out of their homes, including selling the home and downsizing/moving to a cheaper location; selling the home to an adult child and renting it back; and sharing your home/renting out some rooms.

Editors note: A previous version of this article attributed information to AARP that should have been sourced to Evensky, as AARP does not give financial advice. 

Written by Alyssa Gerace

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  • Among the worst things our industry has done in marketing reverse mortgages was to put together concepts like what Mr. Matt Miller describes as a reverse mortgage: “As the name implies, these loans are the opposite of a traditional ‘forward’ mortgage, in which you send the lender cash to pay down debt and increase equity. A reverse mortgage pays out the equity in your home to you as cash, with no payments due to the lender until the homeowner moves, sells the property, or dies. The amount you owe increases over time, while the amount of equity decreases.”  That description plus perceived high upfront costs is why reverse mortgages have been described by leaders in the financial community for so long as mortgages of last resort and a product the more affluent should avoid.
    “Forward” thinkers like Mr. Harold Evensky, CFP and Dr. John Salter, CFP are promoting reverse mortgages as cash management and financial planning tools.  Mr. Miller did a great job in summarizing one positive aspect of what Mr. Evensky is promoting.  While some ideas Mr. Evensky promotes are not as strong as others, it is these ideas which have been generally missing in the industry for over two decades.  It is also why we have heard unwarranted and irrational criticism against financial principles from some within the industry who despite their credentials have no idea what they are saying.  

    It was quite alarming to come into the industry and “learn” a reverse mortgage is the opposite of a forward mortgage and to hear proceeds defined as “income.”  These concepts have for too long been promoted as “education.”  They literally make little sense and have resulted in less than stellar market penetration among the more affluent.  

    Perhaps the concepts being presented by Mr. Evensky will bring more rational thinking to bear on what this product actually can be in the hands of seniors.  It is after all a slightly complex financial product.  However, there has been concern expressed that some ideas being promoted by Mr. Evensky are difficult even for experienced financial professionals among us to easily grasp.  Whether they are or not, the industry needs a healthy “rethink” of what even HECMs are in light of cash management, financial planning, and income tax planning principles.  And, yes, even the house rich but other asset poor senior can benefit from some of these ideas.

    As has been advocated by several in the industry, there may come the day when there will be two different marketing and selling directions in the industry.  There is still a great need for the product in our traditional marketplace as well as a greatly untapped need for the product among the more affluent.  These are very different groups with clearly different needs.  Over time the Saver (and hopefully additional proprietary products) combined with a stronger understanding of how the product can be used (not just how proceeds can be spent) to open doors within the financial community and from there the more affluent.  The potential is there.  The question is will we actually educate the financial community on how this product can be used for the benefit of their clients?  Right now is the time to take advantage of learning and more importantly rethinking what reverse mortgages actually are; certainly sales are not overwhelming the use of our time.

  • Glad to see AARP bringing this up without the tag line “Loan of Last Resort” as they’ve done in the past.  In fact, a quick look at the link on the AARP website shows a woman peering out from her chain locked door as if the boogeyman is on the other side- that doesn’t make it look very assuring.  Give me more pictures of the loan officer being hugged by the homeowners or the dozens of letters we get from them with nothing but appreciation and an end to sleepless nights. 

    thanks for sharing Alyssa

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