When Do Reverse Mortgages Make Sense in Retirement?

Fred Vettese breaks down when a reverse mortgage can make sense in retirement.

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  What do you think about reverse mortgages?

Well, uh, you know what? I actually talked about that in my book. That would be, uh, that actually is my, um, step five. They’re like a five step way of, of securing your retirement income. And that’s the last one. I talk about the importance of having a backstop. So everything else fails. I mean, you, you already expect, you, uh, deferred your CPP until age 70.

Um, you saved enough, you used a tool like PERC in order to figure out how much income you can actually draw. Um, so you did all the right things. Um, then step five is if all, if those things all fail because you lived too long, your investment returns were even worse than you thought, then you want to be able to, to tap into the, your home equity.

Like, what are you gonna do with all that home equity when you’re, you have a paid off home and you’re 88, um, and now all of a sudden you have a need for some money. What, what do you, what would you do with that otherwise? So the great thing about reverse mortgage is that, uh, you don’t have to pay any of it back as long as you live in the same house until death.

And so it’ll be your, yeah. So it’ll be your estate that worries about, about paying it back and, and there obviously will be the equity in the home to pay it back. Um. Uh, obviously you don’t wanna pay more interest than you have to, but yeah, the interest, uh, rates on a reverse mortgage are gonna be higher than on a basic or regular mortgage, but that’s, that’s still something you can afford.

Once again, just like an annuity, I would say don’t consider a reverse mortgage until sometime in your seventies. Uh, because you wanna make sure that you’re actually gonna stay put. You’re not gonna think about moving again. Uh, if you’re gonna buy the reverse mortgage and you just don’t want to use it.

You wanna do, don’t want to, you don’t wanna use that last lever until you really absolutely have to.

Yeah. Again, you and I, I think, view so many of these things in a similar fashion. I don’t view reverse mortgages as being good as bad. They’re a tool, and in the right case, they can be valuable.

My father’s Plan five, his plan B is for me to take out a reverse mortgage if he runs out of money. I mean he’s, yeah, he’s got all this laid out. Absolutely. He’s announced a couple years ago. He is 93 now that he’s never going to die. That he’s going to be the first person to live forever. Initially I laugh, but I’m actually starting to get concerned he may pull it off.