Motley Fool: Reverse Mortgage a ‘Proven’ Way to Boost Retirement Income

Maintaining enough income in retirement is an ongoing issue for many American seniors, and finding effective methods to maintain or bolster senior finances becomes a major concern. One such proven way to boost retirement income is by employing a reverse mortgage, particularly since it requires no monthly payments. This is according to financial columnist Selena Maranjian in a piece at the Motley Fool.

“Having sufficient income in retirement is critical, yet many people worry that they won’t have enough. Only 71% of retirees expect their savings and income to last until the end of their life, while a mere 42% of pre-retirees expect theirs to, per a 2019 report by the Alliance for Lifetime Income,” she says. “Fortunately, there are some ways to boost your retirement income — via actions you can take now or later.”

While not as conventional as some of the other proposed methods, a reverse mortgage is an option that has the potential to work for seniors who find themselves in specific situations, Maranjian writes.


“[A reverse mortgage] involves getting a loan with your home as collateral, often receiving the money in monthly (tax-free) installments,” she says. “The loan won’t have to be repaid until you’re no longer living in the home – such as when you die or move into a retirement home or care facility – and it’s generally paid off by selling the home. There are pros and cons to consider, though.”

One of the possible cons to consider is that a home cannot be left to the heirs unless they can pay the reverse mortgage off, she says. This is why it’s best to consult a financial professional before actually getting one, Maranjian writes.

Other “proven” methods for bolstering retirement income include working longer; keep working part-time while in retirement; setting up regular income via annuities; saving more money; investing more in dividend-paying stocks; borrowing against a life insurance policy; and delaying Social Security benefits.

While Maranjian is correct in describing loan proceeds as “tax-free,” describing a reverse mortgage in its entirety that way is ill-advised. While loan proceeds are tax-free, there are various other taxes and fees associated with getting a reverse mortgage, according to Jim McMinn, lead sales trainer of learning and development at Finance of America Reverse (FAR) in a November 2019 panel at the National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting in Nashville.

“When you’re getting a reverse mortgage, there could be taxes associated with that. We’ve got property taxes, recording taxes, intangible taxes, the list goes on,” he said in the presentation. “So, when we look at that, we have to specify which portion of the loan is actually tax-free.”

Read the story at the Motley Fool.

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  • The statement “that a home cannot be left to the heirs unless they can pay the reverse mortgage off” is blatantly false in Colorado where I work. Title must transfer to the heirs before they can refinance or sell the property. The heirs cannot sell or refinance a home they don’t own! In the simplest case, any mortgage borrower can hold title with a beneficiary deed. If title is held this way, title transfers to the heirs upon death of the borrower. They are then in title so they can sell or refinance the property.

    With almost any mortgage, forward or reverse, the loan would come due as a result of any title transfer. The lender then has three options: They can ignore the transfer. They can request payment. They can foreclose. The lender is not required to do anything. If the property has suffered uninsured fire damage and is subject to back taxes, the land may not be worth the cost of foreclosure and demolition. In this case, the lender may choose to abandon their interest to a tax sale. They are more likely to prefer that the heirs either sell or refinance the property to pay off the loan. If this is not successful, the lender can foreclose.

    The error in the above statement is confusing the title transfer and loan payoff as one transaction. They are two separate and independent transactions. With a typical reverse mortgage in Colorado today, the heirs could transfer title, sell the property, pay off the loan and walk away with money. Note that they must transfer title before selling the property because it is difficult to get signatures from dead people. I’m not familiar with the rules in other states, but I assume the process is similar. The basic process isn’t any different whether the property has a traditional forward mortgage or a reverse mortgage. The home is more likely to be over encumbered in the early years after closing if the loan is a VA, FHA, or USDA loan than a reverse mortgage.

    Don Opeka NMLS 261505

  • I understand what Donald Opeka is saying and he is right where Colorado is concerned.

    However, even though when a HECM comes into play in Colorado, the title does NOT TRANSFER to the heirs, the heirs are only added to the title of Home, big difference!

    The heirs still are not the borrower, only on the deed, therefore, when all borrowers that are on the title pass on or leave the premises as their permanent residence, all requirements prevail pertaining to a reverse mortgage.

    The heirs still have to either satisfy the lien on the property, buy the Home, sell the Home or sign the deed over to HUD/Servicer in lue of foreclosure.

    John A. Smaldone

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