Using a Reverse Mortgage to Generate Retirement Funds

Numerous studies indicate that many Americans won’t have enough money saved to sustain them in retirement and that they will need to rely on other sources for cash flow during their non-working years. For retirees looking to boost their retirement funds, a reverse mortgage can be one solution, says a recent article from MainStreet, a publication of TheStreet.

The article highlights several avenues that can retirees can take to bolster their savings with additional cash flow, including tapping into home equity.

“With such low interest rates one can use the equity in your home to get a long term loan to consolidate other expenses—auto, credit cards, student or repairs—into a single, low payment—freeing up substantial cash flow and potentially creating a tax deductible interest,” says Christopher McGill, CEO at Philadelphia-based East River Bank. “Another option is to investigate a reverse mortgage—just make sure it works for you.”

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The need to bolster savings with other assets, like home equity for example, is critical for today’s retirees and those heading into their retirement years.

“Living comfortably in retirement isn’t so much about how much money you have, but more importantly what counts is having a solid cash flow plan in place that includes a very clear income and distribution strategy,” said Gary Plessly, a certified financial planner and co-author of The Book on Retirement (Richter Publishing, 2015), in the article. 

Read the Main Street article. 

Written by Jason Oliva

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  • “’With such low interest rates one can use the equity in your home to get a long term loan to consolidate other expenses—auto, credit cards, student or repairs—into a single, low payment—freeing up substantial cash flow and potentially creating a tax deductible interest,’ says Christopher McGill, CEO at Philadelphia-based East River Bank. ‘Another option is to investigate a reverse mortgage—just make sure it works for you.’”

    Like so many, Mr. McGill thinks he understands the deductibility of interest but by his comment he shows how short his insight actually is. Yes, one might be able to create a home equity indebtedness interest deduction as describe but without more facts, that is hard to say but he misses the whole idea of using reverse mortgages to achieve better results.

    Because of how high the Standard Deduction currently is, few seniors see much, if any, value from itemizing their income tax deductible expenses. In fact understanding how to bunch income tax deductions and match them to high income years along with the proper use of the HECM line of credit means that some HECM borrowers have been able to obtain substantially lower income tax liabilities at no net cash outflow.

    Too many in the mortgage industry try to practice in the field of income tax advising with no real training or basic understanding of the rules.

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