Pairing an Annuity with a Reverse Mortgage

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Annuities & Reverse Mortgages:
The Good, the Bad and the Ugly

Annuities and reverse mortgages don’t go together! If you’re a seasoned reverse mortgage professional- that concept has been chiseled into your mind like the 10 commandments Moses carried down from Mt. Sinai. After all, we’ve been warned against what regulators call cross-selling. That’s where a commission-motivated insurance agent invests a reverse mortgage borrower’s loan proceeds into an annuity contract. This practice is strictly verboten and in fact, is directly spelled out in the 2008 HERA (Housing & Economic Recovery Act) legislation which prohibits a lender from requiring a borrower to purchase an annuity as a condition of obtaining the loan.

Jack Guttentag, also known as The Mortgage Professor turns the conventional wisdom of annuities and reverse mortgages on its head in his recent column “Why Annuities Are Underutilized (And What Could Be Done About It)”. He argues that annuities should be part of most retiree’s financial plans yet those who stand to benefit the most rarely use them. Read More


Scott Chamberlain August 16, 2022 at 9:27 am

Can you advise me if there is a written law preventing financial planners to refer clients to a reverse professional for review and planning considerations. There are tax benefits, Line of Credit growth opportunities, not to mention the no payment requirement.

James E. Veale, MBT August 20, 2022 at 8:43 am


Interesting you should mention tax benefits. Which ones are you referring to?

James E. Veale, MBT August 20, 2022 at 12:02 pm


I am addressing your law question in a separate comment.

To avoid breaking laws, it is best you seek legal advice from a competent attorney who practices law in the state(s), you want to provide such services in, as each state and US territory has its own laws as does the federal government. Only provide income tax advice if you have a license to do so in the state you will provide such services or the state you wii provide such services allows you to do so with no such license.

Many believe they understand income tax laws but do not know such simple matters as the only kind of home mortgage interest that is deductible is interest paid on acquisition indebtedness. That means that a 2021 Form1098 may show that $100,000 in interest was paid on a mortgage yet under income tax law only some, all, or even none of the $100,000 in interest paid in 2021 may ever be deductible under current income tax rules.

Even more troubling is that many of these self proclaimed income tax experts have no idea that even deductible home mortgage interest may have no or a greatly reduced income tax benefit due to the Standard Deduction. Finally there may be little or no income tax benefit from deductible home mortgage interest because the taxpayer has too little adjusted gross income in the tax year deductible.

Finally, reverse mortgage proceeds can be taxable at termination if the UPB at termination exceeds the value of the home at termination where there is foreclosure on the home, it is sold in a short sale, title to the home is transferred through deed in lieu of foreclosure, a trustee exercises the right of sale under a deed of trust, or other transfer occurs. Generally, exclusion of certain forgiven debt does not apply but other rules apply that will mitigate or eliminate any tax liability on the additional taxable proceeds.

Even in a college’s business school there is a tendency to oversimplify income tax rules except in a formal income tax major, particularly at the graduate school level.

I hope the foregoing helped.


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