Forbes - A recent New York Times article on reverse mortgages published a common error that feeds into negative misconceptions that continue to hinder using home equity as a strategic retirement income source.
It cannot be overstated that a homeowner keeps title in a reverse mortgage, that the homeowner can never owe more than the value of the home, and that the heirs have the right to keep the home. A reverse mortgage, while it is a complicated product in some ways, can be easily explained as a slightly more expensive traditional mortgage in which you have the flexibility to make voluntary monthly payments, or to not make payments at all until the last homeowner dies, moves, or sells the house. Current retirement security research confirms that a reverse mortgage can provide an influx of cash flow to meet longevity challenges, market volatility, and other health and property threats during the retirement years.
Reporters and consumers both can access research from experts like John Salter, PhD from Texas Tech, Wade Pfau, PhD, a professor and prolific researcher at The American College of Financial Services, and Barry Sacks, J.D., Harvard Law and PhD from MIT. These scholars have shown that strategic use of reverse mortgages can improve a retirement income plan significantly. Reverse mortgages can be used to improve cash flow, help defer Social Security benefits, and improve retirement portfolio sustainable withdrawal rates. Reverse mortgages also offer a lot of flexibility to retirees. The product can be established as a line of credit, a lump sum payment, tenure payments, or a mix of these options. The variety of distribution plans and lack of a prescribed payment schedule can fill different needs for different situations. All of them allow homeowners to tap safely into their home equity.