Writing in response to a reader asking for advice about whether or not to pay off a mortgage with a recent inheritance, a Los Angeles Times columnist advised that the homeowner explore a reverse mortgage instead — with the explicit recommendation to not worry about leaving an inheritance and instead focus on personal wellbeing.
Liz Weston, a syndicated columnist whose work appears in the L.A. Times and other publications, responded to the story of a 66-year-old reader who recently came into $400,000 of family money. Faced with a $450 monthly payment on a 30-year mortgage taken out a few years back, the letter writer asks Weston if the windfall should go toward completely paying off the debt; the money that the writer had previously set aside for mortgage payments could then be used to make needed improvements on the home.
The writer suggests a desire to leave the home to a sister or nephew free and clear, “without any complicated bank or loan issues,” but also doesn’t want to surrender the perceived tax advantages of keeping a mortgage.
Weston first dispels the notion that having a mortgage for tax purposes is automatically a good idea, noting that many borrowers don’t receive a tax benefit from their mortgage payments and even those who do only reap a relatively small amount — for example, a borrower in the 25% IRS tax bracket only receives about 25 cents for each dollar paid toward a mortgage, Weston writes.
“It can make sense, though, to keep a mortgage to preserve liquidity,” Weston writes, adding that while a traditional forward home equity line of credit could provide that necessary access to cash, the writer should consider a Home Equity Conversion Mortgage given her age.
After providing a quick breakdown of the program and its requirements, Weston allows that a HECM could complicate the estate-settlement process after the writer dies, but insists that it shouldn’t be the borrower’s primary concern.
“In any case, preserving an inheritance probably shouldn’t be your top priority,” Weston writes. “You should focus instead on preserving your quality of life and your financial flexibility.”
Weston, a financial planner who also writes for NerdWallet, concludes her response with a word of warning about personal responsibility.
“Reverse mortgages have gotten safer and less expensive in recent years, but you would need to exercise discipline not to waste the money you borrow on frivolous purchases,” she writes. “You want that equity to be available for you when you need it, such as for nursing home or other long-term care expenses.”
This isn’t the first time Weston has praised the reverse mortgage as an option for certain borrowers: Back in February, she called the “new” reverse mortgage safe but warned against potentially high origination fees, and dubbed them a “wealth management tool” in 2015.
Read Weston’s full column at the Los Angeles Times.
Written by Alex Spanko