Historically speaking, reverse mortgages were almost always put in place as a “needs based” loan.  As a matter of fact, the reverse mortgage used to be advertised as a “loan of last report”.  TV commercials used to ask, “Are you running out of money and struggling to pay your bills?”  Homeowners only did a reverse mortgage if they did not have any other options.  However, in recent years there has been a significant amount of research done to show the value and importance of incorporating home equity into one’s overall financial plan.  Now, reverse mortgages are being utilized as part of a “retirement strategy” to help homeowners achieve their dreams and goals.  Part of the reason this has recently changed is because there are no restrictions on how you can use the proceeds from a reverse mortgage and there are dozens of different ways that homeowners are utilizing reverse mortgages today.

In general, I believe there are 3 primary categories of the ways that homeowners use a reverse mortgage:

1. Needs based
2. Lifestyle based
3. Planning based

I will list several examples of what I mean when I say needs based, lifestyle based and planning based.  Let’s start with a few ways that homeowners can use a reverse mortgage under the needs based category:

• The number one reason homeowner’s get a reverse mortgage is to improve cash flow
• Refinance a traditional mortgage to eliminate mortgage payments and improve cash flow (you must still pay property taxes, HOA dues and homeowner’s insurance)
• It can be used to pay off debt and improve cash flow
• It can be used to cover other monthly expenses or insurance premiums
• It can be used to generate income by receiving monthly payments for life or a period of time
• It can be used to cover nursing home costs for a spouse, healthcare costs or other related expenses
• Home improvement projects, deferred maintenance or handicap access improvements

The next category is lifestyle based clients. Let’s go over a few examples on what I mean when I say lifestyle based, keep in mind that you can use the funds for anything you want:

• Travel more to visit friends or family members
• Right-size to a better home in retirement using the reverse for purchase option
• Purchase a vacation home using equity from your primary residence
• Retire prior to 65 and use the funds to cover the costs of medical insurance until you are eligible for Medicare
• Retire sooner rather than later so you can live for Today!
• Check off a few of your “bucket list” items
• Gifting to family, provide an inheritance to your heirs while you are alive and watch your legacy
• Gifting to non-profits or charitable organizations again while you are alive

Lastly and potentially the most under-utilized are the planning-based strategies.  These are some of my favorite ways to utilize a reverse mortgage and some of the most innovative:

• Create the line of credit (which grows over time) to utilize for anything you want!
• Help financially sound homeowners to payoff their mortgage to simply have more money to enhance their quality of life/ retirement
• Use the line of credit to protect your other assets when the stock market takes a down turn (avoid sequence of returns risk)
• Use the line of credit as a cash account or a buffer asset to avoid holding excess cash on hand
• Use the line of credit to cover future in-home costs in lieu of (or in conjunction) long-term care insurance
• Use funds from the reverse mortgage to allow your other assets to grow over a longer period of time and have more opportunities for compound growth
• Purchase a rental property to increase cash flow
• Tax strategies, like taking funds from the line of credit and paying them back on your own terms to capture potential tax deductibility
• Use to maintain or purchase long-term care insurance or life insurance policies
• If you believe home values may go down, you can recession proof the equity in your home
• Use the reverse mortgage funds to cover the taxes associated with converting an IRA to a ROTH
• Use the line of credit as a wealth multiplier to potentially pass a larger nest egg to the next generation (consult your tax or financial advisor)

This is by no means an exhaustive list of ways to utilize a reverse mortgage.  However, I hope the 3 categories along with the above examples help you to better understand how you can potentially utilize a reverse mortgage.  I believe it is also important to highlight a few ways a reverse mortgage should not be utilized:

• I do not recommend taking equity from your home and investing in the stock market
• I do not recommend the use of a reverse mortgage for short-term financing. There are typically other options that are better suited in these situations
• I do not typically recommend a reverse mortgage on a home that someone is planning to sell in the near future
• I do not typically recommend a reverse mortgage when the homeowners desire to leave the home to their heirs free and clear

This is again not an exhaustive list but covers a few situations at a high level when I do not typically recommend a reverse mortgage to clients.  It is very important that you speak to a local professional to go over your specific goals and your situation to learn more about your options.