Financial Strategy Book Details How a Widowed Spouse Can Use a Reverse Mortgage

For those facing difficult and unexpected life events, one of the most cumbersome and difficult things to have to deal with revolves around household finances. A book authored by a certified financial planner tailors the subject matter of the work specifically to this subject, and in one chapter details how a reverse mortgage might be able to be used strategically for someone who has endured the loss of a spouse.

This is according to a chapter in “Inheriting Your Spouse’s IRA: The Widow’s Guide to Keeping More of Her Assets,” written by columnist, entrepreneur and Certified Financial Planner (CFP™) Bill Harris released late last year. A chapter specifically detailing how a reverse mortgage can be incorporated into such a spouse’s financial plan was recently reprinted at The Street, and specifically discusses both why a reverse mortgage could make sense for some, and how conversations about the product category have evolved in recent years.

“Each month, the loan balance increases as interest and fees are added,” Harris explains in the book. “As the loan balance goes up, it cuts into the equity of the home. The homeowner(s) or their heirs will eventually have to pay back the loan, often by selling the home or by purchasing it at its appraised value when the loan comes due. As a ‘non-recourse’ loan, the borrower (or estate) is not responsible for any repayment shortfalls.”

Some reverse mortgage professionals may take issue with some of the specific terminology that Harris uses to describe how the product works, but will likely be encouraged by the acknowledgement of the improving reputation of reverse mortgages over the past several years.

“Many financial experts have started viewing reverse mortgages strategically,” Harris writes. “A paid-off house is an asset, similar to a retirement portfolio. They see taking money out of the house as no different from spending down a portfolio.”

Harris offers a few scenarios in which a reverse mortgage can assist a surviving spouse financially, including use of a reverse mortgage’s proceeds to delay the taking of Social Security benefits until age 70; allowing a portfolio to grow in a “rising market” instead of using it to pay for living expenses; paying down high-cost services like long-term care or taxes triggered by Roth IRA conversions; or the use of a reverse mortgage’s proceeds to fund home renovations that can more easily allow for aging in place.

However, the use of such a product may not be universally optimal in every situation, Harris points out, echoing the sentiments of many other financial professionals who put an asterisk on their descriptions of reverse mortgage loans.

“Most Americans have a significant amount of their wealth tied up in their homes,” Harris writes. “A reverse mortgage allows a widow to tap into that equity. However, a reverse mortgage is not a cure-all. Careful consideration is essential before entering into a reverse mortgage agreement.”

Read the chapter excerpt at The Street.

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