Retirement FAQ: Do You Retire with Forward Mortgage or Get a Reverse Mortgage?

Despite the recent changes, the reverse mortgage program will continue to be a beneficial program for the growing baby boomer generation as well as future borrowers. In fact, the new, consolidated reverse mortgage will bring the program back to basics, providing a secure retirement planning tool for retirees who want to age in place with an extra boost of cash flow for the proverbial “rainy day.”

Financial Planner, Michael Kitces, is in firm agreement:

“…while reverse mortgages have typically been viewed primarily as a ‘loan of last resort for those who have entirely depleted their other assets, the reality is that reverse mortgage strategies should perhaps receive much greater consideration in the earlier stages of an affluent retirement plan.” 

In a blog post he published on his website, “Is a Reverse Mortgage Better than Keeping a Traditional Amortizing Mortgage in Retirement?,” Kitces outlines the reasons why retirees should consider a HECM loan, as an alternative to retiring with a forward mortgage.

In truth, there is nothing wrong with retiring with a forward mortgage. In the current low-yield environment, where an inexpensive mortgage can provide enough leverage to boost the amount and sustainability of a retirement income, it may even make more sense.

However, Kitces warns, that there are downsides to retiring with a forward mortgage as well. Specifically, when monthly mortgage payments threaten to deplete your already dwindling savings. In a sense, whenever your investments don’t yield their expected returns but you have to continue to pay your monthly mortgage payments, you may find yourself in reverse cost dollar averaging.

Reverse mortgages are a solution to this problem because they allow you to pay off your mortgage, effectively eliminating monthly mortgage payments on your home. To some, this may not be an attractive option, especially when the proceeds from their HECM loan only provide enough cash flow to clear their debts.

However, this isn’t without its benefits.

For example, unfixed expenses, such as dining out or buying material goods, can be budgeted from month to month depending on your income. Monthly mortgage payments, however, are, for the most, fixed. In the end, your retirement becomes a game of how much do I need to pay off my monthly mortgage payments (and how do I get it).

This alternative is less than ideal.

A reverse mortgage can clear your debts and, in many situations, leave enough cash to get your retirement started for years to come. Even if there isn’t enough left, one less fixed payment, means more ways to enjoy your income.

Interested in a reverse mortgage? There is no time to wait. Give PS Financial Services a call at (888) 845-6630 or sending us an email at info@PSReverseMortgage.com. We do not pressure those who inquire. We are simply here to help.