The homeowners are past clients I helped obtain a mortgage several years ago. They were looking to purchase a second home in a resort area, to enjoy with their adult children and grandchildren. The purchase price was approximately $900,000. The decision they wanted to discuss with me was how to finance the acquisition of the second home. They were evaluating the following options:
One of the homeowners is a semi-retired Certified Public Accountant while the other is a semi-retired researcher. They were both in their early 70’s. They were financially sophisticated and had the ability to pay cash for the second home. They also had the income to qualify for a traditional mortgage and make monthly payments if they chose this route. They did not have a mortgage on their current home.
Their financial position was as follows:
At the time the homeowners contacted me they were leaning towards paying cash for the second home by withdrawing the funds from their taxable investment account. The consequences of withdrawing $900,000 were two-fold:
I showed them a different strategy that involved the use of a Reverse Mortgage. The strategy I presented allowed them to use their current home to increase their net worth by managing their liquidity and tax situation.
First, they would not need to withdraw $900,000 from their investment account which means they would save a substantial amount of money by not having to pay federal and state income tax. More importantly, they could leave their cash in their investment account earning income, growing and compounding.
The Reverse Mortgage also had the potential to give them access to a line of credit that would grow each year. A little-known feature of a Reverse Mortgage line of credit is that the unused balance essentially earns interest each year and grows. Lastly, with the Reverse Mortgage line of credit, payments on the amounts borrowed are optional for as long as they continue to live in the home. The Reverse Mortgage option provided the homeowners control of how they managed their assets (including their home equity), income and liquidity.
After reviewing the alternatives and various scenarios, the homeowners decided the following:
After the obtaining the Reverse Mortgage, here are highlights of the homeowners’ position:
The Reverse Mortgage allowed them to use the equity in their home to accomplish very specific financial and lifestyle goals. It also allowed their new worth to grow at a faster pace than it would have if they had paid cash for the second home.
Reverse Mortgages are not well understood by homeowners, financial advisors, real estate professionals or attorneys. Most do not understand that Reverse Mortgages can provide the following benefits:
The frame of reference most people have for a Reverse mortgage is from 20 years ago. Beginning in 2012 and continuing through 2020 there were major changes and revisions to Reverse mortgages and now they have become a key component in the retirement income strategy and wealth building strategy of sophisticatd homeowners and financial advisors. In addition to the financial benefits, there are significant non-financial benefits such as providing security for spouses and beneficiaries and additional options when planning for healthcare, long term care and estate planning. Unfortunately, not enough people are aware of the benefits, and worse they continue believe the myths and misinformaton that still exist.
This article will address the misinformation and myths that still exist regarding Reverse mortgages.
MYTH VS FACTS
MYTH #1 – A Reverse mortgage is a loan of last resort.
FACT: Reverse mortgages have evolved from strictly a needs-based product to a solution that many financial planners recommend as an important component of a comprehensive retirement plan and a retirement income strategy. Approximately 50% of the clients we have done a reverse mortgage for have been wealthy and view the Reverse mortgage as an investment and finanical planning tool that also offers benefits for estate planning, healthcare and long-term care planning.
MYTH #2 – When you get a Reverse mortgage you no longer own your home, the Bank owns it.
FACT: This is the number one misconception that people have. I have had homeowners, financial advisors planners and attorneys state this as a reason to not do a Reverse mortgage. The truth is the homeowner retains title and 100% ownership with a Reverse mortgage.
MYTH #3 – The bank takes your home when you pass away.
FACT: When a homeowner passes away, their ownership interest goes into their estate or is transferred to the joint tenant the same as if there were not a Reverse mortgage on the property.
MYTH #4 – My kids or other beneficiaries will be on the hook for a big liability.
FACT: Borrowers can leave their home to their kids or other beneficiaries. When the borrowers pass away, the beneficiaries may either pay the balance due on the Reverse mortgage and keep the home or they may sell the home and use the proceeds to pay off the reverse mortgage. They will never pay more than the house is worth. If they sell the home, any remaining equity after the Reverse mortgage is repaid is theirs to keep. This is no different than what happens with a property that has a regular mortgage.
MYTH #5 – The bank can foreclose if you owe more than the house is worth.
FACT: The way reverse mortgages are structured today this is highly unlikely, However, the only requirements to remain in the home are that the property taxes and insurance are paid, the HOA dues (if applicable) are current, the house is reasonably maintained, and that the last surviving borrower or an eligible spouse does not vacate the house for more than 12 consecutive months. Even if you owe more than the house is worth, the bank CANNOT foreclose if you continue to meet these requirements.
MYTH #6 – My spouse can be forced to move out of the home if I die.
FACT: Borrowing spouses and eligible spouses can remain in the home after the co-borrower or the primary borrower passes away. The spouse only needs to continue to meet the conditions of the loan (see Myth 5 above). In many ways this provides more protection than a regular mortgage. This factor is one of the prime non-financial benefits of a Reverse mortgage.
MYTH #7 – I cannot ever sell my house if I have a reserve mortgage.
FACT: While a Reverse mortgage is better suited for people who don’t plan to sell anytime soon, if circumstances change and you do need to sell, you can. You simply sell the home, pay off the balance with the proceeds of the sale, and the remaining equity is yours to keep. No different than any other mortgage. Also, a Reverse mortgage does not have a prepayment penalty.
MYTH #8 – Social Security and Medicare will be affected.
FACT: A Reverse mortgage will not have any effect on your Social Security payments or Medicare benefits. However, there could be an impact on Medicaid or other public assistance programs that are means tested. Talk to your adviser to make sure you fully understand the impact if you have means tested benefits.
MYTH #9 – I will have to pay taxes on the money I get from a Reverse mortgage.
FACT: The proceeds from a Reverse mortgage, whether paid in a lump sum or periodically, are not subject to income tax. Consult a tax advisor for more information.
MYTH #10 – Reverse mortgages are extremely costly.
FACT: This is subjective since the fees will vary depending on the type of Reverse mortgage selected and the strategies that are being pursued. In some cases, the costs will be higher than a traditional mortgage but it should be remembered that the benefits are much more significant than a traditional mortgage as well. A cost benefit analysis can only be analyzed once there is an understanding of each individuals unique goals and how a reverse mortgage can be utilzed to meet these goals. In most cases, the borrower includes the costs associated with the reverse mortgage in the initial loan amount and will not have any out-of-pocket costs.
MYTH #11 – Reverse mortgage interest rates are higher.
FACT: The majority of Reverse mortgages closed are guaranteed by the Federal Housing Authority (FHA). FHA interest rates on a Reverse mortgage are comparable to traditional mortgage rates.
MYTH # 12 – Reverse mortgages have hidden risks that can cost you your home.
FACT: This is a catchall myth. The terms of a Reverse mortgage are very clear. A borrower must pay their property taxes, homeowner’s insurance, keep the property in good repair and must maintain the property as their primary residence. These obligations are not hidden. In fact, for anyone carrying a regular mortgage, with monthly mortgage payments in retirement, I would argue that a regular mortgage carries substantially more risk of losing the house than a Reverse mortgage.
The last myth to discuss deserves its own section because in some ways it is the least understood part of a Reverse mortgage but may be the most significant benefit. Often people hear or believe the following.
MYTH #13 – A Reverse mortgage will use up all my equity and reduce the amount available for inter-generational wealth transfers to my kids, grandkids or other beneficiaries.
FACT: The common belief is that a Reverse mortgage reduces equity, thereby reducing the value of the estate for the homeowner’s heirs and this is presented as a negative. Current research and thinking on Reverse mortgages show this is not necessarily the case:
The desire to preserve home equity is often a psychological constraint that people impose on themselves which can lead to a less efficient retirement. Under the concept of retirement income efficiency, home equity and other financial assets are equivalent, and they should be looked at in total rather than in isolation. While taking money from the Reverse mortgage may reduce the home-equity component, it does not necessarily reduce the overall net worth or value of the total assets since other financial assets can grow rather than be drawn down.
Retirement-income efficiency is defined as: using assets in a way that allows for more spending and/or more wealth over time.
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If you are interested in finding out about the benefits a Reverse mortgage can offer contact Wayne Tucker at 303-468-1985 or at wtucker@spectramortgage.com.
The Federal Housing Finance Agency (FHFA) publishes a quarterly report called the House Price Index Quarterly Report. This report provides appreciation data on a state by state and by city-by-city basis. This report presents hard data and goes beyond the anecdotal information reported in the media. The highlights of this report are:
Housing prices increased in 44 states from the third quarter of 2024 through the third quarter of 2025, with the following states showing the highest annual appreciation (Illinois 6.9%, New York 6.8%, North Dakota 6.3%, New Jersey 5.9%, Connecticut 5.8%).
The following chart shows the appreciation by state over the past four years through September 30, 2025: FHFA Qtr 3 Map
The Housing Price Index provides price appreciation data for the past quarter, the past year and the past five-year period. The report also reports appreciation data from the first quarter of 1991 through the first quarter of 2025.
In the last 5 years the states with the highest appreciation are:
The states with the highest appreciation since 1991 are:
For Colorado, price appreciation was -1.19% for the past four quarters. For the past five years, appreciation in Colorado was 34.23%. Since 1991 the appreciation in Colorado has been 581.03%, which is the third highest of any state in the country.
For the Denver Metro area, appreciation for the past year was 0.13%, and 30.93% for the past 5 years. Since 1991 the appreciation in the Denver Metro area has been 626.34%, which is the second highest among the largest 100 metropolitan areas in the country. Overall, housing prices rose in 76 of the largest 100 metropolitan areas over the past year.
There is a wealth of information in the report. For the full report CLICK HERE
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The Federal Housing Finance Agency (FHFA) publishes a quarterly report called the House Price Index Quarterly Report. This report provides appreciation data on a state by state and by city-by-city basis. This report presents hard data and goes beyond the anecdotal information reported in the media. The highlights of this report are:
Housing prices increased in 46 states from the second quarter of 2024 through the second quarter of 2025, with the following states showing the highest annual appreciation (New York 8%, Connecticut 7.8%, New Jersey 7.5%, Mississippi 7.3% and Illinois 6.7%).
The following chart shows the appreciation by state over the past four years through June 30, 2025: FHFA Qtr 2 Map
The Housing Price Index provides price appreciation data for the past quarter, the past year and the past five-year period. The report also reports appreciation data from the first quarter of 1991 through the first quarter of 2025.
In the last 5 years the states with the highest appreciation are:
The states with the highest appreciation since 1991 are:
For Colorado, price appreciation was -.61% for the past four quarters. For the past five years appreciation in Colorado was 39.92%. Since 1991 the appreciation in Colorado has been 582.39%, which is the third highest of any state in the country.
For the Denver Metro area, appreciation for the past year was -1.27%, for the past 5 years was 35.88%. Since 1991 the appreciation in the Denver Metro area has been 620.01%, which is the second highest among the largest 100 metropolitan areas in the country. Overall, housing prices rose in 81 of the largest 100 metropolitan areas over the past year.
There is a wealth of information in the report. For the full report CLICK HERE
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The Federal Housing Finance Agency (FHFA) publishes a quarterly report called the House Price Index Quarterly Report. This report provides data for housing appreciation on a state by state and city-by-city basis. The report presents hard data and goes beyond the anecdotal information reported in the media. The highlights of this report for the first quarter of 2025 are:
Housing prices increased in 49 states from the first quarter of 2024 through the first quarter of 2025, with the following states showing the highest annual appreciation (Rhode Island 11.4%, West Virginia 9.3%, Connecticut 9%, Ohio 7.6% and Wyoming 8.25%).
The following chart shows the appreciation by state over the past four quarters through March 31, 2025:
The Housing Price Index provides price appreciation data for the past quarter, the past year and the past five-year period. The report also reports appreciation data from the first quarter of 1991 through the first quarter of 2025.
In the last 5 years the states with the highest appreciation are:
The states with the highest appreciation since 1991 are:
For Colorado, price appreciation was 1.93% for the past four quarters. For the past five years appreciation in Colorado was 43.16%. Since 1991 the appreciation in Colorado has been 597.47%, which is the third highest of any state in the country.
For the Denver Metro area, appreciation for the past year was 1.69%, for the past 5 years was 40.13%. Since 1991 the appreciation in the Denver Metro area has been 640%, which is the second highest among the largest 100 metropolitan areas in the country. Overall, housing prices rose in 89 of the largest 100 metropolitan areas over the past year.
There is a wealth of information in the report. For the full report CLICK HERE
