Wade Pfau’s New Book about Reverse Mortgages Generates Buzz
An expert in retirement research has authored a new book: “Reverse Mortgages: How to Use Reverse Mortgages to Secure Your Retirement.” The book, by Wade Pfau, Ph.D., CFA, is the culmination of his extensive research focusing on the use of reverse mortgages as an effective tactic in retirement planning. He makes a strong distinction between the responsible and strategic use of reverse mortgages and the irresponsible methods of the past that gave the product a bad name.
Pfau, a professor of retirement income at The American College of Financial Services, also is the director of retirement research at McLean Asset Management and writes “The Retirement Researcher” blog.
In an excerpt from Pfau’s book published by Investment News, the author writes:
In short, well-handled reverse mortgages have suffered from the bad press surrounding irresponsible reverse mortgages for too long. Reverse mortgages give responsible retirees the option to create liquidity for an otherwise illiquid asset, which can, in turn, potentially support a more efficient retirement income strategy.
Pfau describes the reasons why reverse mortgages gained a bad reputation, indicating that “some are based on misunderstandings, some were once true but have been mitigated, and some may still remain.” He breaks down nine “key troubles” surrounding reverse mortgages and counters them with facts, including increased government regulation, research and financial planning strategies. He also cautions that responsible use of reverse mortgages requires borrowers to use self-control and “not give in to the temptation to treat the reverse mortgage as a windfall and spend it quickly.”
New federal regulations have strengthened the reverse mortgage product as a viable retirement planning option “to ensure [they] are used responsibly as part of an overall retirement income strategy, rather than to fritter away assets,” Pfau says. The new regulations “improve the sustainability of the underlying mortgage insurance fund, better protect eligible non-borrowing spouses and ensure borrowers have sufficient financial resources to continue paying their property taxes, homeowner’s insurance, and home maintenance expenses.”
Pfau also says recent research shows that “responsible use of reverse mortgages can enhance an overall retirement income plan” by recognizing the upfront costs and growth of the loan balance. Part of responsible planning with reverse mortgages includes being realistic and cognizant of the fact that benefits are present only after the costs are subtracted, he says.
Reverse Mortgage Daily (RMD) recently reviewed Pfau’s book, describing it as “a comprehensive guide on the valuable role home equity plays in retirement income planning.” Pfau includes new research about the reverse mortgage tenure payment as an alternative to annuities, according to RMD, and the book offers comparative research about several retirement strategies.
Elliot Raphaelson of the Chicago Tribune recommends Pfau’s book to anyone considering a reverse mortgage. Raphaelson says that while the topic of reverse mortgages isn’t new, Pfau’s book is unique because it writes about the product from the context of overall retirement planning. He praises Pfau’s discussion of the upfront and ongoing costs of reverse mortgages, which include origination fees, initial mortgage insurance premiums, counseling, and interest and servicing fees.
Raphaelson makes note of Pfau’s comparison of HECM lines of credit with the traditional home equity line of credit as well as his discussion of the benefits reverse mortgages can offer in retirement planning, such as back-up funds for spending and protections on the home’s value. Like RMD, Raphaelson also notes Pfau’s discussion of reverse mortgages as alternatives to annuities.
“Reverse mortgages are still a niche topic in retirement income planning,” Pfau said in an interview with RMD. “In the financial planning community there is still an opportunity to be an early mover into this area as more consumers and financial planners take a closer look at this product.”