The Truth About Reverse Mortgages, Part 2

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 CreditLet’s address the costs first.• Reverse mortgage loans and credit lines have loan origination fees similar to regular forward mortgage loans. (Which cannotexceed $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 ...