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Dr. Wade Pfau Provides History of Reverse Mortgages

September 21, 2018

Reverse Mortgages: From Last Resort to Smart Retirement Tool?

A new Forbes article by retirement expert Wade Pfau argues that Home Equity Conversion Mortgages (HECMs)—better known as reverse mortgages—are shedding their bad reputation and emerging as a legitimate retirement-income strategy.

Key takeaways:

  • Federal reforms since 2013 have made HECMs safer, requiring borrowers to prove they can cover taxes, insurance, and maintenance.
  • Academic research shows early, coordinated use of a variable-rate HECM line of credit can boost spending power and/or legacy, even after high upfront costs.
  • Rather than draining portfolios first and saving the home for last, retirees can treat home equity as a liquid asset—borrowing against it strategically to reduce sequence-of-returns risk.
  • Legacy isn’t lost: Heirs inherit the net value (home equity + remaining investments), which can be used to keep the house if desired.

Pfau calls the old “save the house at all costs” mindset a psychological trap that reduces retirement efficiency. Instead, a reverse mortgage lets retirees “gift the value of the house, not the house itself.”

Read the full piece: Forbes – Reverse Mortgage Background and History

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Larry McAnarney

HECM Loan Specialist

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Can I use a reverse mortgage to purchase a home?

Yes — you can buy a home with a reverse mortgage, and it’s one of the most powerful options available to today’s 62+ homebuyers. Using an FHA-insured LifeStyle Home Loan or Home Equity Conversion Mortgage for Purchase (H4P), older adults can buy a single-family home, townhome or approved condo while eliminating mandatory monthly mortgage payments. ... Read more

What are the basic requirements for a reverse mortgage?

The basic requirements for a reverse mortgage are designed by the Federal Housing Administration to ensure that seniors can safely access their home equity while maintaining long-term financial stability. To qualify for an FHA-insured Home Equity Conversion Mortgage (HECM), the most common type of reverse mortgage. There are also proprietary reverse mortgage programs such as ... Read more

What if one of the co-borrowers passes away or must move out for health reasons?

If one of the co-borrowers on a reverse mortgage passes away or must permanently move out for health reasons, the remaining co-borrower can continue living in the home with no changes to the reverse mortgage, as long as they still meet the loan requirements. With an FHA-insured Home Equity Conversion Mortgage (HECM), both spouses or ... Read more

When will the principal and interest charges become due?

With an FHA-insured Home Equity Conversion Mortgage (HECM) reverse mortgage, the principal balance and interest charges do not become due until a maturity event occurs, allowing seniors to live payment-free for as long as they meet the program requirements. The reverse mortgage becomes due and payable only when the last borrower (or eligible non-borrowing spouse) ... Read more

Can I refinance my existing mortgage, home equity loan, or other debts with a reverse mortgage?

Yes — you can refinance an existing mortgage, home equity loan, HELOC, or other qualifying debts with a reverse mortgage, and this is one of the most common reasons seniors choose an FHA-insured Home Equity Conversion Mortgage (HECM). A reverse mortgage allows homeowners age 62+ to eliminate their current monthly mortgage payment by paying off ... Read more

Will I be taxed on my reverse mortgage proceeds?

No — reverse mortgage proceeds are not taxed, making them an attractive financial tool for seniors seeking tax-free cash flow in retirement. With an FHA-insured Home Equity Conversion Mortgage (HECM), the money you receive is considered loan proceeds, not income, which means it is not subject to federal income tax*. Whether you choose a lump ... Read more

How much money can I get?

The amount of money you can get from a reverse mortgage, specifically an FHA-insured Home Equity Conversion Mortgage (HECM), depends on several key factors that determine your available loan proceeds. Lenders calculate your principal limit (maximum loan amount) based on your age, current interest rates, and the appraised value of your home or the FHA ... Read more

Will I have to pay any fees?

Yes — you will have to pay certain fees with an FHA-insured Home Equity Conversion Mortgage (HECM) reverse mortgage, but many of these costs can be financed directly into the loan, minimizing out-of-pocket expenses. The most common reverse mortgage fees include the FHA upfront mortgage insurance premium (UFMIP), which protects borrowers and ensures the loan ... Read more

How is a reverse mortgage different from a traditional home equity loan or line of credit?

A reverse mortgage HELOC is fundamentally different from a traditional home equity loan or home equity line of credit (HELOC), and understanding these differences is essential for seniors exploring safe ways to use home equity in retirement. With an FHA-insured Home Equity Conversion Mortgage (HECM), homeowners age 62+ can access a portion of their home’s ... Read more

How can I receive the funds from a reverse mortgage?

With an FHA-insured Home Equity Conversion Mortgage (HECM), seniors have multiple flexible ways to receive funds from a reverse mortgage, making it a highly customizable retirement tool. Borrowers age 62 and older can choose from several disbursement options depending on their financial needs and goals. One option is a lump sum payment, which provides the ... Read more

What is a reverse mortgage?

A reverse mortgage is a unique type of home loan designed specifically for homeowners age 62 and older, allowing them to convert a portion of their home equity into tax-free cash without having to make monthly mortgage payments. Unlike traditional mortgages, where the homeowner makes monthly payments to the lender, a reverse mortgage lets the ... Read more

Are interest rates fixed or variable?

With an FHA-insured Home Equity Conversion Mortgage (HECM) reverse mortgage, borrowers can choose between fixed or variable interest rates, depending on their financial goals and how they want to access funds. A fixed interest rate is available when taking a lump sum at closing, offering predictable, stable interest over the life of the loan. Variable ... Read more

Will a reverse mortgage affect my government benefits?

A reverse mortgage generally does not affect government benefits, making it a safe financial tool for seniors who rely on Social Security or Medicare. FHA-insured Home Equity Conversion Mortgages (HECMs) provide tax-free funds that are considered loan proceeds, not income, which means they do not count as taxable income and typically do not reduce Social ... Read more

How can I use the proceeds?

You can use reverse mortgage proceeds in a variety of ways to support financial security, lifestyle needs, and long-term planning in retirement. With an FHA-insured Home Equity Conversion Mortgage (HECM), homeowners age 62 and older can access tax-free funds while continuing to live in their home, providing flexible options for managing expenses. Many retirees use ... Read more

What has to be repaid when the loan becomes due?

When an FHA-insured Home Equity Conversion Mortgage (HECM) reverse mortgage becomes due, only the loan balance, including principal, accrued interest, and any mortgage insurance premiums or fees, must be repaid. The loan typically becomes due when the last surviving borrower permanently moves out, sells the home, or passes away, or if the homeowner fails to ... Read more

What is a Home Equity Conversion Mortgage (HECM)?

A Home Equity Conversion Mortgage (HECM) is the most common type of FHA-insured reverse mortgage designed for homeowners age 62 and older. HECMs allow seniors to convert a portion of their home equity into tax-free cash without making monthly mortgage payments, while retaining full ownership of their home. Funds can be received as a lump ... Read more

Can a reverse mortgage be refinanced?

Yes, a reverse mortgage can be refinanced, allowing homeowners age 62 and older to replace an existing Home Equity Conversion Mortgage (HECM) with a new reverse mortgage to access additional funds or improve loan terms. Typically this is done when there is home appreciation and/or lower interest rates than the initial HECM loan.