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Pfau Advocates for Reverse Mortgages in Forbes

Professor and reverse-mortgage advocate Wade Pfau explained home equity conversion mortgages to Forbes readers this week, noting the loans’ steady transition from options of last resort to a potential retirement-planning cornerstone.

Pfau, a professor of retirement income at the American College and the director of retirement research for McLean Asset Management, explains how taking out a HECM early can give retirees access to an increasing amount of credit over the life of the loan, and notes that it can relieve pressure on other, more volatile parts of a borrower’s overall retirement portfolio — helping him or her weather down markets.

After the laying out the standard explanation of the requirements for HECM eligibility, Pfau spends a significant portion of the article warning of the potential downsides and pitfalls associated with reverse mortgages, advising borrowers to shop around for the lowest fees and best rates, and warning that they should only be used in conjunction with other retirement-funding options.

“It allows homeowners to borrow against the value of their home, creating liquidity from an otherwise illiquid asset, and grants the flexibility to defer repayment until they have permanently left the home,” Pfau writes. “But if this liquidity creates the temptation to use the proceeds in an unwise manner, then you may be better off avoiding it.”

Pfau has long been a proponent of reverse mortgages as a useful retirement tool, and is frequently cited in popular articles about HECMs along with other researchers such as Mark Warshawsky and Barry and Stephen Sacks. As RMD reported last week, originators are increasingly using these experts’ research to explain HECM options to both consumers and financial planners.

Pfau also published a favorably reviewed book about HECMs and retirement planning last year.

Written by Alex Spanko