Investment News: 9 ‘Surprising’ Ways to Use Reverse Mortgages

Reverse mortgages can be used to accomplish a variety of retirement needs, depending on the particular circumstances of the borrower. Whether this means using a reverse mortgage to fund future long-term care costs, buy a new home or protect other retirement assets, there are various strategies worth considering for how retirees can leverage their home equity, according to a recent Investment News article.

“Financial advisers who dismissed reverse mortgages in the past may want to take a second look,” writes Mary Beth Franklin for Investment News. “Consumer protections have increased and set-up fees have been dramatically reduced. Leading researchers believe reverse mortgages could solve some of the income challenges of retirees who saved too little to finance a retirement that could last decades.”

The article spotlights nine “surprising” ways to use a reverse mortgage, including commonly touted strategies such as using these loans to pay off an existing mortgage, optimize Social Security draws and paying for future health care related expenses, to more complex methods such as using a reverse mortgage to manage taxes, pay Roth conversion taxes and usage in a “gray divorce.”


In this last strategy, the article states that older couples can use a reverse mortgage to divide a marital housing asset.

“In one scenario, the spouse remaining in the home can take a lump sum distribution from a reverse mortgage to buy out the other spouse,” the article states.

A second scenario would entail the sale of the marital home, with each ex-spouse using some of the sale proceeds to obtain a reverse mortgage to buy their respective new homes, according to Shelley Giordano, chair of the Funding Longevity Task Force, who was cited in the article.

View the nine “surprising” ways to use a reverse mortgage.

Written by Jason Oliva

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  • Jason, good article with some great sales tools and ideas for us to use!

    I read the 9 surprising ways to use a reverse mortgage, they are excellent. I intend to devise a brochure handout with all 9 suggestions, it will be a great sales tool when I am through with it.

    I appreciate you putting out this article Jason and I am sure all that reads it will agree.

    John A. Smaldone

  • Several originators recommended this article on Linked In. The writer tries to make a case for reverse mortgages but her limited knowledge of them too many times leads to false conclusions.

    For example, she states: “Reverse mortgages allow homeowners age 62 or older who own their home outright or who have a small mortgage balance to convert the equity in their primary residence into a liquid, tax-free asset.” This is not a conversion of any kind unless we are addressing something like the SARRs (Shared Appreciation Rights Riders) that were once offered with HECMs. A reverse mortgage is simply a collateralized loan that results in a lien that generally reduces the answer (called equity) to a math question. The income tax ramifications of taking proceeds from a reverse mortgage are no different than the income tax ramifications of any other non-recourse mortgage.

    It is strange that the only ongoing cost of a reverse mortgage that the writer emphasizes is interest despite the fact that the second largest cost charged on all HECMs when they terminate after five years is generally FHA ongoing mortgage insurance premiums which like interest is charged monthly (but a constant 1.25% annual rate on all current HECMs) on the average outstanding balance due in the month. The overwhelming percentage (over 95%) of commercial reverse mortgages being originated today are HECMs.

    There was nothing practically surprising about the claimed nine uses of reverse mortgages other than the general lack of 1) any significant explanation on each, 2) warnings on who might incur problems or financial loss from adopting some of the the “surprising” strategies and uses, and 3) finally, the need to find an independent financial planner who is competent in knowledge, skill, and experience in implementing the strategies and advising the consumer throughout retirement in utilizing the reverse mortgage in its highest and best use.

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