USA Today: Reverse Mortgages Help Retirees, If Done Right

It has been roughly three months since the Department of Housing and Urban Development implemented the product-changing financial assessment in its Home Equity Conversion Mortgage program. Many mainstream news outlets have picked up on the news, including USA Today in an article published this weekend.

“As you near retirement, you may foresee a need for more money in the golden years than your savings can handle,” writes Sterling Raskie, a  financial planner at Blankenship Financial Planning in New Berlin, Ill., in an article published by USA Today. “You look to use Social Security, careful withdrawals from qualified accounts and maybe annuities. Can you also use one of your biggest assets: your home and its equity in the form of a reverse mortgage?”

Raskie’s discussion of reverse mortgage benefits and risks includes a note on the financial assessment and the required set-aside that results for some borrowers. He notes the origination fees involved, that interest isn’t tax deductible as it is in a forward mortgage, and that property maintenance, homeowners insurance and tax are ongoing costs that the borrower must continue to maintain. 

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Shop around, he advises prospective borrowers in the article, citing Federal Trade Commission recommendations, including a comparison of costs and fees; an understanding of total cost and loan repayment; and an understanding of the reasons a borrower may need to repay the loan before he or she has planned to do so (in other words, resulting from a maturity event). 

“Pitchmen often dangle these loans as easy tools to fund maintenance and other home costs. Inflation can also eat away the buying power of fixed payment amount,” Raskie writes. “Nevertheless, when you do the deal right a reverse mortgage can increase your chances of a healthy income in your golden years, especially if you use the money in conjunction with other income such as Social Security, pensions and payouts from your retirement accounts.”

View the article on USA Today

Written by Elizabeth Ecker

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  • The author, Mr. Sterling Raskie has two graduate degrees, a masters in science in financial services (from the American College) and a MBA. He is also a CFP as well as an IRS Enrolled Agent since 2013 and declares that he is a tax adviser in his bio on Linked In.

    The author is not only wrong on income tax law as to how it applies to the deduction of reverse mortgage interest but also does not seem to understand what home equity constitutes.

    Here is what he states about the deduction of interest on a reverse mortgage: “You can’t deduct interest on your reverse mortgage on your income tax returns.” He fails to tell us what is the source of his information since it is clearly in contradiction to the advice from the IRS as stated and cited below.

    Page 5 at the bottom of the second column of the 2014 IRS Publication 936 states: ” Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full. Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Part II.” Since this comes from an official IRS publication, is there any doubt that reverse mortgage interest is deductible?

    Here is another statement by the author telling us about the payoff of a reverse mortgage: ” In a reverse mortgage, you use the equity in your home to receive monthly income payments. Generally, once you die or sell the home, you or your survivors In a reverse mortgage, you use the equity in your home to receive monthly income payments.”

    Home equity is the difference between the value of the home and the debt against it. So why ” in a reverse mortgage” do “you use the equity in your home to receive monthly income payments? ” So for example, say the home is worth $450,000 and let say no other debt is against the home other than a balance due of $190,000 making the remaining equity $260,000. So the author is claiming that from the equity of $260,000 the reverse mortgage has to be paid off? Doesn’t he understand that the equity already subtracts the amount due on the reverse mortgage from the value of the home? What does he think “the remaining equity” mean?

    The substance of the article of such an educated and credentialed financial and tax adviser is very troubling.

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

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