Many critics will tell you that a reverse mortgage cost too much. Mind you, most of those critics have never studied reverse mortgages and are relying on misinformation to form an opinion. I wanted to share with you some great information provided by Wade D. Pfau, Ph.D. Wade D. Pfau, Ph.D. CFA, is a professor of retirement income in the Ph.D. program in financial services and retirement planning at The American College in Bryn Mawr, PA. He wrote a great article entitled What the Critics Get Wrong About Reverse Mortgages.   This article was posted to Advisor Perspectives, a website for the financial planning community.

In the article, Pfau talks about the cost associated with a reverse mortgage relative to an overall retirement objective.  When used by itself, one needs to realize the cost is designed to help in a long term retirement.  Since the average retiree spends roughly 22 years in retirement, the cost annualized is minimal.

“The power of a reverse mortgage to help preserve an investment portfolio in retirement can be viewed in any number of ways. For instance, a reverse mortgage could be used to refinance a traditional mortgage to avoid making mortgage payments in the key early years of retirement; it could be used to build a bridge to support the delay of Social Security benefits without taking excess distributions from an investment portfolio; or it could be used to coordinate distributions from an investment portfolio to avoid creating greater pressure on the portfolio when markets are looking bleak.”

By utilizing a strategy of advancing funds from a Reverse Mortgage when the market is down, the homeowner in his case study had roughly $183,000 more in wealth at the end of the process than one that did not.  Even after allowing for financing cost.  See the charts from his case studies below.

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