The perception of reverse mortgages as a “last resort” loan to fund retirement is diminishing, but persistent. Still, reverse mortgages are increasingly being seen as a viable financial tool for eligible borrowers even though prospective users should be aware of high upfront costs, according to a new piece at Dow Jones financial news subsidiary Barron’s.
“One of the most intriguing benefits, I think, is spending coordination with your portfolio,” says Neil Krishnaswamy, a financial planner with Exencial Wealth Advisors in Frisco, Texas to Barron’s reporter Sarah Max. The reverse mortgage line of credit can be a helpful tool to draw from when needed, since interest is only paid on what is used and the loan proceeds are not taxed.
In situations where the market does not cooperate with a borrower’s retirement plans, some of that inherent market risk is mitigated by having a reverse mortgage line of credit to draw from, Krishnaswamy says. “If you have the option to access cash for spending in a tax-efficient manner, you can mitigate some of that risk.”
While the costs associated with mortgage insurance and servicing fees can add up for potential borrowers in tight financial situations, it can still be a potentially good solution for those sitting on a lot of home equity, Max notes.
“For homeowners who have the equity and want to stay in their house, there are worse things than tapping into home equity — as long as it’s part of an overall plan and not simply a license to spend,” Max writes.
“I’ve come full circle on reverse mortgages,” says Steve Vernon, consulting research scholar at the Stanford Center on Longevity, who spoke with RMD in 2018 about the utilization of a reverse mortgage for those in specific financial circumstances.
“The costs of the loans are high, but if you love your house and don’t have other resources, it’s something to consider,” Vernon says.
Read the full article at Barron’s.