The argument against reverse mortgages

Risks, upfront costs can outweigh benefits

Big plans for business in 2018?
Give yourself the tools to own the new year at Connect SF, July 17-20, 2018

DEAR BENNY: I hope you enjoy a good discussion as much as I do, as I’m going to try to convince you that a reverse mortgage is more than a last resort. Let’s look at a 70-year-old who has been very comfortable in his retirement, collecting Social Security and withdrawing 4 percent from his $500,000 portfolio.

Unfortunately, his portfolio has lost 40 percent of its value, is now worth $300,000, and in order to maintain his income he now has to withdraw 7 percent. We both know that by withdrawing 7 percent that $300,000 will go fast. Why not enter into a reverse mortgage, leave the portfolio alone so it can have a chance to recover, and use the equity in the home (tax-free dollars) to make up the income from the portfolio? When the portfolio has recovered a bit, stop using the equity and return to the portfolio, keeping in mind the equity not used in the reverse mortgage is in a growing line of credit that is available at anytime for any reason. –Stephen