Reverse Mortgages Are Better When Implemented Earlier in Retirement

In an article he wrote for Forbes Magazine, Wade D Pfau makes a very strong case for implementing a reverse mortgage in a retirement plan earlier rather than later.

Mr. Pfau, is not only a regular contributor to Forbes, the well-known financial publication, but is also a Professor at the American College, Principal at McLean Asset Management and author of the book, “Reverse Mortgages: How to use Reverse Mortgages to Secure Your Retirement”, (information on how to get a copy of this book is included below).

He acknowledges that Reverse Mortgages have held a bad reputation, but have undergone some changes that have not only improved the Reverse Mortgage itself, but have made them a powerful retirement planning tool. The vast majority of reverse mortgage in the US are Home Equity Conversion Mortgages (HECM) reverse mortgages, which are not only regulate but are also insured by the federal government through the Department of Housing and Urban Development (HUD). Since 2013, the refinements to the HECM “improve the sustainability of the underlying mortgage insurance fund, better protect eligible non-borrowing spouses, and ensure borrowers have sufficient financial resources to meet their homeowner obligations”.

"Financial planning research has shown that coordinated use of a reverse mortgage starting earlier in retirement outperforms waiting to open a reverse mortgage as a last resort option once all else has failed."

There are 2 main benefits that make opening a reverse mortgage earlier in retirement a better option.

1). Finances obtained from a reverse mortgage can take the place of funds that would otherwise be withdrawn from another investment while the market is down. This protects the retiree from being forced to sell at a loss, and providing time for the portfolio to recover.

2). When you open a reverse mortgage, the principal limit (the overall amount made available through the HECM), actually grows over time. Mr. Pfau states, “This principal limit growth will almost always allow for greater access to funds later in retirement than if you instead waited to open the reverse mortgage until later when it is first needed”. In other words, even if you don’t need the money right away, you will get more money than you would if you waited.

He goes on to cover eligibility requirements and states that a reverse mortgage should be part of an overall financial plan. You can obtain a copy of his book on Amazon by clicking here.

Read the original article in Forbes: