Reverse Mortgages are ‘Overhyped’

There are four “overhyped” investment strategies that retirees should avoid when trying to determine how to make ends meet in retirement, and among equity-indexed annuities, non-traded real estate investment trusts (REITs) and cash-value life insurance, reverse mortgages should be considered among the last options. This is according to Liz Weston, a certified financial planner and columnist at NerdWallet in a piece at

“[I]nvestments that are enthusiastically pushed by commission-earning salespeople may not be the best for your financial health,” Weston writes. “Before you buy any of the following, you’d be smart to investigate lower-cost alternatives and to consult an objective, knowledgeable third party, such as a fee-only financial planner.”

Reverse mortgages allow for seniors to convert the equity they’ve built up in their homes to cash, but come with an asterisk that borrowers don’t always seem to realize, Weston says.


“[B]orrowers don’t always realize that their debt is accruing monthly interest,” she says. The amount owed on the loan may grow to the point of consuming any remaining equity, Weston writes, citing a conversation with AARP Foundation attorney Barbara Jones.

“Reverse mortgages typically aren’t a good fit for people who may need to rely on their equity for future expenses, such as medical bills or nursing home care,” Weston writes. “Reverse mortgages could be a way to avoid foreclosure if a homeowner can’t afford to make payments on a regular mortgage.”

There may be no equity left for their heirs, “but at least the person gets to age in place,” Jones tells Weston.

In contrast, a new research working paper released by the Boston College Center for Retirement Research reveals not only that the majority of seniors’ preferences is to remain in their homes as they age, but that a majority of homeowners experience enough residential stability to tap home equity through either reverse mortgages or property tax deferrals.

“The overall conclusion is that most homeowners experience enough residential stability to tap home equity through products and programs like reverse mortgages and property tax deferrals,” the paper concludes.

Read Weston’s article at

Companies featured in this article:

, , ,

Join the Conversation (6)

see all

This is a professional community. Please use discretion when posting a comment.

  • The first article shows a lack of understanding on how to benefit from a HECM line of credit (and to a much lesser degree, a proprietary reverse mortgage line of credit). It seems Liz is looking at reverse mortgages as strictly closed end products. She shows little understanding as how to the available HECM line of credit grows.

    You would think that a CFP would be focused on cash flow, particularly future cash flow from the HECM line of credit. It is baffling why Liz did not look into or address that topic.

    For example, assume that a HECM closed with a Principal Limit of $225,000 but only $200,000 was available through the line of credit at closing, ($25,000 were the closing costs). The effective monthly growth rate on the HECM line of credit was 0.4166666667%. Further assume that the expected interest rate had been 3.3% and the borrower was 65 at closing. If none of the available funds are drawn from the line of credit and no prepayments were received from the borrower in 240 months (20 years), the available line of credit would grow to $542,528 when the borrower was 85. Now let us say that the borrower wants that sum paid out on a maximum tenure payout basis. The monthly payouts would be $3,959. At the end of 15 years, the borrower would have received $712,620 which is considerably more than the $200,000 that was available at closing.

    Further, if the borrower only had mandatory obligations of $25,000 at closing, the most that could be drawn from the line of credit at closing would be $110,000. The remaining $90,000 would be available 12 months following closing plus an additional $4,605 from the one year growth in the available HECM line of credit. So drawing the money out as quickly as possible means that the borrower only received $204,605 in total cash proceeds (versus $712,620).

    It is unclear what the second article summary had to do with the first. If there is a link between the two, it is unstated.

      • Melinda,

        Thank you for your recommendation.

        I joined Nasdaq but even that did not allow for comments to Liz’s article. I went to NerdWallet and did not find a comment area there either.

        I am emailing Liz instead.

  • Jim,

    Very well said and you are right in every respect of your comment!

    You are sure right when you said the article and those quoting have a tremendous lack of understanding on how to benefit from a HECM line of credit. You are also correct by saying Liz shows little understanding as how to the available HECM line of credit grows.

    Great comment Jim,

    John A. Smaldone

string(87) ""

Share your opinion