In this episode of Protecting and Preserving Wealth, we continue our deep dive into reverse mortgages, focusing on the truths and misconceptions surrounding them. We pick up where we left off with Rob Kanyur of Fairway Mortgage, digging into the tax implications of reverse mortgages — an area Bruce is particularly passionate about.
📚 Get Bruce’s Book: Moving To Tax-Free (on Amazon) https://amzn.to/4msRo2k
⏱️Chapters & What You'll Learn
(00:00) – Introduction & Setup – Welcome back, recap from Part 1, and guest reintroduction.
(01:00) – Reverse Mortgage Line of Credit Explained – Why 99.9% of clients choose the growing credit line option.
(04:00) – Tax Strategies & Case Study – Using reverse mortgages for tax deductions, Roth conversions, and a retired pilot’s success story.
(08:30) – Reverse for Purchase – How to buy a new home in retirement while preserving liquidity and avoiding monthly payments.
(11:00) – Volatility Protection & Portfolio Preservation – Leveraging reverse mortgages during market downturns to protect investments.
(13:30) – Aging in Place & Accessing Equity – Unlocking $15 trillion in senior home equity nationwide while remaining in your home.
(15:30) – Costs, Risks & Considerations – Fees, FHA insurance, and when a reverse mortgage may not be the right fit.
We explain how a reverse mortgage line of credit differs from a traditional Home Equity Conversion Mortgage (HECM). Rob explains that most clients choose the variable line of credit because it grows over time, giving homeowners access to increasing tax-free funds while deferring repayment. The line of credit itself grows, not the loan balance, creating a powerful tool for liquidity in retirement. Unlike a traditional HELOC, a reverse mortgage line of credit can’t be frozen or recalled by the bank, offering retirees more security.
Bruce highlights how this line of credit can be used strategically for tax planning. For example, borrowers can let the interest accrue for years, then make lump-sum payments to generate large mortgage interest deductions to offset other taxable events like Roth conversions. Rob breaks down how payments first cover mortgage insurance premiums, then interest, then principal — which means part of that payment becomes accessible again as usable credit.
We explore a case study where a retired pilot used a reverse mortgage for purchase to buy a more expensive home closer to family without draining his portfolio. By putting down cash and financing the rest with a reverse mortgage, he preserved liquidity and gained tax advantages through coordinated payments. Bruce calls this a “reverse for purchase,” a strategy that’s increasingly popular for retirees wanting to right-size their home without losing access to cash.
We also address the reverse mortgage line of credit as a safeguard during market downturns. Instead of selling stocks in a bad market year, retirees can draw tax-free funds from the line of credit for living expenses, protecting their portfolios and opening opportunities for timely Roth conversions. Rob shares how even high-net-worth clients use reverse mortgages as a smart piece of an overall wealth plan, debunking the myth that they’re only a last-resort option.
Jon brings us back to the bigger picture — most seniors have significant untapped equity in their homes. Reverse mortgages can help them age in place, cover rising costs, and gain peace of mind without selling their home or sacrificing lifestyle. But we’re careful to acknowledge the real costs: higher origination fees, upfront mortgage insurance premiums, and considerations around family heirs or low existing mortgage rates. Bruce reminds us it’s not for everyone, but for the right client, it can be a powerful tool.
We close with Rob and Bruce sharing how listeners can reach out to explore whether a reverse mortgage fits into their own financial plan.
As mentioned in today's episode, here is an exerpt from Bruce's Book "Moving to Tax Free," about Reverse Mortgages:
Costs, Risks, and Considerations for Reverse Mortgage Loans and Lines of Credit
Let’s address the costs first.
• Reverse mortgage loans and credit lines have loan origination fees similar to regular forward mortgage loans. (Which cannot
exceed $6000 and are paid to the lender.)
• Real estate closing costs similar to a regular 30-year mortgage (appraisal, title, surveys, inspections, recording fees, mortgage taxes, credit checks and other fees).
• Interest and servicing fees.
• Annual mortgage insurance premium, which is .05% of the outstanding mortgage balance. Homeowners insurance and property taxes, which you must keep current.
The front-end cost that can dissuade some homeowners from taking out a reverse mortgage loan or line of credit is the upfront mortgage insurance premium. It will be 2% of the lesser of the home value or the maximum lending limit. You don’t normally pay for this out of pocket, it is added to the loan balance. But this is the one primary cost that makes the initial setup costs for a reverse mortgage more expensive than a traditional 30-year mortgage.
Risks
Let’s consider some of the risks of a reverse mortgage.
• If you are trying to leave equity in your home as a legacy gift to your heirs, a reverse mortgage will consume a portion of your equity, and there is a risk that in a bad real estate market you may not be able to leave any equity in the house to your heirs. Certainly, you will likely leave less equity. At the same time, if you do not have to make a house payment, you may be able to leave more funds in savings to your heirs.
• If you borrow all the available equity out of your home with a reverse mortgage you will still need to pay the property taxes and insurance, and you will need to have enough funds to maintain your home. It would usually only be if you are not able to meet the loan requirements that you would risk losing your home.
• Remember, this home has to be your primary residence. You cannot live away at some other address without running afoul of the loan requirements.
• A reverse mortgage does not affect your Social Security benefits.
• A reverse mortgage could affect your ability to qualify for other need-based government programs such as Medicaid or Supplemental
Security Income (SSI). If you think you may need one of these programs in the future it is a good idea to discuss this with a benefits specialist to make sure your eligibility will not be compromised.
• Proceeds of a reverse mortgage loan or line of credit can never be used for investment purposes.
• When you bunch mortgage interest with a reverse mortgage, and pay the mortgage interest back, only the mortgage interest and origination fee are generally deductible. Some of the other fees that have been added to the loan (i.e., nondeductible closing costs) that are not tax deductible will also likely have to be paid at the same time in order to secure the bunched-up mortgage interest deduction.
Considerations
• Many people assume that the reverse mortgage is a loan of last resort. I would submit to you that it can be a strong and flexible financial tool for many retirees.
• If you just can’t stomach the thought of a reverse mortgage because it has too many negative connotations for you, that’s OK. They are not for everyone.
• There are financial reasons not to use one. I am old enough to use one, but I don’t want to give up my 2.5% mortgage interest rate on my 15-year mortgage. I can afford the payments. It makes a lot of sense to keep my current mortgage at such a low interest rate.
• I have seen multimillionaires use a reverse mortgage with great success. You are not too wealthy to use a reverse mortgage for many reasons.
• I have seen people who could have benefited greatly from a reverse mortgage look into it, only to be talked out of it by their greedy children. Be aware of conflicts of interest.
• If you die with a reverse mortgage your children do not have to pay the loan off immediately. They will have to list the house for sale and will usually get six months to sell it and pay off the loan. They may also be given two optional three-month extensions if requested timely.
For more information about anything related to your finances, contact Bruce Hosler and the team at Hosler Wealth Management: Visit us online at https://www.hoslerwm.com/
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