Financial planner: Reverse mortgages can help retirees with high property taxes

A retired public school teacher living in the Pacific Northwest told MarketWatch that he is feeling stressed by high property taxes on a fixed income and asks if he would be a good candidate for a financial adviser. One planner solicited for input thinks that a reverse mortgage could be a worthy consideration, among other options, according to a new column.

“I am a 76-year-old widower who is [a] retired school teacher. My Social Security and retirement income is fixed at about $5,600 per month,” he said. “I have lived in Edmonds, Wash. for 49 years, and my property taxes rise quickly. My property taxes are about $16,000 for 2023-24, and likely will be $20,000 or more for 2025; home sales drive up my property taxes, not improvements. I do not have the money to keep up with these taxes with a $10,000 IRS limit on deductions.”

Kenneth Robinson, a certified financial planner at Practical Financial Planning in Cleveland, said that the retiree could consider a reverse mortgage as a option, noting he has come around on their benefits.

“Once federal regulations were adopted some years ago, the Home Equity Conversion Mortgage (HECM) eliminated many of the problems we came to associate with the term reverse mortgage,” Robinson told MarketWatch. “I used to dislike reverse mortgages. Now, for many homeowners, they can be the most efficient way to stay in their homes.”

Since the homeowner is a retiree on a fixed income and is well above the required minimum age to engage with the HECM program, the product could be an option if he meets other necessary qualifications, Robinson said.

“The home is the only asset the lender can use to pay back the money owed,” he explained. “If the loan ends up being more than the home is worth, the difference can’t be made up from other assets and the line of credit will grow at a rate that’s determined at the outset of the reverse mortgage.”

Other potential options mentioned by other contributors included relocation and more detailed conversations with dedicated financial advisers.

Reverse mortgage professionals often cite financial advisers as their most ideal referral partnerships, but uptake on the product category by those in the profession has been tepid. Many originators in high-priced housing markets cite financial advisers as pivotal partners, and certain financial planners have started to more openly embrace reverse mortgages as a tool to help protect their clients against market forces and other potential losses.

But this take is not universal. A 2023 study published by Mutual of Omaha Mortgage suggested that misunderstandings about reverse mortgages remain rampant. It showed that despite plenty of investment in education, the industry has work to do before it gets to where it wants to be.