What is a reverse mortgage, and would it be good for me?

It’s like asking if a stone is good or bad. If thrown through a stained glass window, it's a bad thing. If used to construct an orphanage in a 3rd world country, it's a very useful and valuable thing.

-Foundation for Financial Wellness

Video Transcript

OK, let’s talk about reverse mortgages. This can be a really polarizing and misunderstood financial tool, and this is exactly why we love to teach about the topic! Like any other financial product, a reverse mortgage isn’t necessarily intrinsically good or bad, it’s just a financial product. It’s like asking if a stone is good or bad. If thrown through a stained-glass window, it's a bad thing. If used to construct an orphanage in a third-world country, it's a very useful and valuable thing. 

So, how would you plan to use a reverse mortgage? Some of the most common uses of a reverse mortgage by retirees include well first and foremost, it is used to supplement retirement income. It can turn into an income stream. Someone who has become the trusted voice in the industry is Ph.D. Wade Pfau. He’s recently stated that, “Used strategically, a reverse mortgage can greatly improve the sustainability of your retirement income.” It’s part of your financial plan.

It also allows you to stop making traditional mortgage payments in retirement. Of course, you’ll have to continue paying your taxes and your insurance, but the mortgage goes away.

Or maybe take a small amount of equity and pay up your long-term-care coverage. We talked about that in another lesson, or single pay into a life insurance policy if you need that.

You might use it to make your Medicare payments.

You can establish a line of credit that’s tied to increasing equity of the home for years into the future.

Or something called a standby portfolio protection — Essentially you use the reverse mortgage to enhance your cash flow during economic downturns. That prevents you from having to take money from your portfolio while it’s in a loss.

So, let’s do a quick review. Do you have any decisions to make or actions to take at this point?

I would say be sure to hang around and take part of our other Reverse Mortgage lesson as we’re going to get into more of the nuts and bolts of how they actually work. But, for now I would encourage you to consider learning more before making a decision, a yes or a no, on whether a reverse mortgage might make sense for you and your family.

This is something that we’re very comfortable talking about, so I want to remind you to take advantage of your counseling session if this is a topic that you would like to discuss. The counseling’s included. It’s private. It’s confidential, and it’s always with one of our Certified Financial Wellness Counselors. To schedule your counseling session, simply click on the “Request Counseling” button.