U.S. News: Reverse Mortgages Reduce Housing Costs in Retirement

Housing can often be one of the biggest retirement expenses — but it can also be one of the biggest retirement assets, especially when tapping into home equity through a reverse mortgage.

This strategy is one of six outlined in a recent U.S. News article, which explains a number of ways to pay less for housing in retirement.

“Retirees ages 62 and older can use a reverse mortgage to tap their home equity to pay for retirement expenses while remaining in the home as long as they live,” author Emily Brandon writes. 


However, like other loans, reverse mortgages have a variety of fees associated with them, and become due when the borrower moves, sells the home or passes away. 

While many people in the retirement and financial planning world have moved away from the term “last resort” as it relates to a reverse mortgage, Christopher Herbert, managing director of the Joint Center for Housing Studies at Harvard University, still suggests other options should be explored before committing to the loan. 

“A reverse mortgage removes the obligation for monthly payments going forward, and under certain circumstances it might provide tremendous financial security, but it’s something that should be used as a last resort,” he told U.S. News. 

Among the other strategies U.S. News suggests for bringing down housing costs during retirement are paying off your mortgage, downsizing, relocating, becoming a renter and sharing your living space. 

Read the full article here

Written by Emily Study

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  • While Mr. Herbert may have revised his ideas on the use of HECMs, he has not changed his conclusion that it is still nothing more than a financial product of last resort. While this is a story of partial success in communicating our message of looking again at the early use of HECMs in retirement this is also a story of complete failure to meet that goal.

    The view of Mr. Herbert is not unusual but is one that is rarely voiced in our industry as it is the most significant and difficult hurdle to overcome when reaching out to financial advisors. It is the reaction of accepting new uses of HECMs in financial planning which is what we in part are promoting yet concluding that a HECM is still only a product that should be used as a last resort.

    It has been years since Dr. Barry Sacks first promoted his idea about taking proceeds from a HECM before dipping into retirement assets. Generally it has fallen on deaf ears. For me and others there are problems in the underlying assumptions. Yet there are clearly scenarios where his model is of great use and needs airing.

    Where the position of Mr. Herbert puzzles me is when it comes to strategies like increasing the pace of decumulating retirement assets from the standard 4% rate to as high as 6% as demonstrated in an article by Dr. Jerry Wagner. Even more puzzling is the lack of recognition of using a HECM early in retirement as a Standby Reverse Mortgage. I have run scenarios where even if the senior does not use any funds from the HECM, the payback period for the initial costs of the HECM is 3 to 5 years based on some rather conservative assumptions. Why would this strategy be relegated to one of last resort?

    We may have made major inroads into the financial advisor community but there is a long way to go. If the view of Mr. Herbert ultimately prevails, we will once again see FINRA retracting its recent position on reverse mortgages and once again recommend using reverse mortgages only as a last resort.

    (The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)

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