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Not All Agree


Despite Increased HECM Acceptance Some Reject Use of Home Equity in Retirement

thumbs-up-downPreparation and research are key when addressing those who may oppose your closely held beliefs. This requires us to approach opposing arguments with an open mind and intellectual honesty to accurately assess the opposing argument. In recent years, much has been written in both the media and professional financial publications on the benefits of strategically using a reverse mortgage as part of retirement income planning. However not all agree.

While the tide of opinion has turned in our favor amongst financial professionals, some stand opposed to the use of home equity for their client’s financial needs. Daniel Kern and Renee Kwok of TFC Financial Management in Boston, are two such individuals who recently presented their position in a recent article in

The co-authors cite three common ways their clients can extract home equity,

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  1. I am against using a sale lease back to help fund those retirement years. Do you know how many kids have said, gosh mom and dad I know this sounded like a good idea in the beginning but I can get much more rent from most anyone else than what your paying. Sorry, but you have to go.Unfortunately there are no laws protecting loving caring parents from their greedy kids
    Well then, how about HELOC. Sounds good but someone has to make those payments. Remember the purpose of a reverse mortgage is to enhance their liquidity not to drive the senior into more debt.

    • Peter,

      You ask: “Do you know how many kids have said…?”

      The question is, do you know how many kids have done sale-leasebacks with their parents in the US? Generally when done with an attorney, the WRITTEN lease is binding with determinable lease increases (like the growth in the line of credit), maintenance agreements, clear division of lessee and lessor cost obligations, automatic renewal provisions and many other safeguards. How many sale-leaseback agreements have you reviewed?

      What do you mean there are no laws protecting parents from their children? If both are of legal age, normal contract law applies. Yes, courts try to be sensitive to purely familial matters but the courts will also strictly enforce contract law. Your presentation is full of misinformation.

      You write so little about HELOCs, you make it abundantly cleary that you are merely opining.

      You end with: “Remember the purpose of a reverse mortgage is to enhance their liquidity not to drive the senior into more debt.” You got the first part of that sentence exactly right. It is the latter part that is questionable. Since lenders do not use simple interest and MIP rates but rather compound these monthly, seniors with more than modest balances due will automatically go into more debt by the very nature of negative amortization.

  2. Shannon is correct. Not all asset managers/financial advisors find HECMs suitable for retirement cash flow planning.

    In fact a friend of mine is a relative of one of the biggest advocates here in California of leveraging a principal residence to buy rentals and other investments. When the friend asked the leveraging advocate at Thanksgiving dinner what he would do with an opportunity that was opening up to the relative but the only asset available was the lendable portion of the home. Without missing a bite, the levering advocate said pass on the deal. So the relative asked why? The levering advocate replied: “Look I know that what I say in public is different but to me your home is your castle and don’t mortgage the castle more than what it takes to buy it.”

    There are two kinds of client meetings I attend at financial advisors’ offices. The first is where the client all but demands to get the HECM even before the meeting starts. The second is where the financial advisor is actively advising as to whether to get the HECM or not. In the first kind of meeting, I try to smooth any ruffled feathers of the financial advisor. In the second, sometimes I feel like I am fighting for my livelihood. In most such meetings if the financial advisor was not the source of advising to get the HECM, the financial advisor has ruffled feathers.

    However, many financial advisors are willing to exchange ideas especially outside of their busy season. But how they respond to you in a meeting may belie their prejudice against reverse mortgages. Sometimes they just want to hear the pros so that they are prepared with the cons.

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