Wealth Formula by Buck Joffrey

506: Mortgages and Reverse Mortgages with Wade Pfau

May 11, 2025

Wade Pfau, a leading expert in retirement income planning and author, dives into the intricacies of mortgages and reverse mortgages. He explains how mortgages can act as financial levers, highlighting their potential for investment returns through home appreciation. Wade discusses the emotional aspects of mortgage decisions while presenting reverse mortgages as strategic tools for retirees. He also addresses the tax benefits and risk considerations associated with reverse mortgages, emphasizing their role in enhancing financial security.

31:45

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Episode guests

Wade Pfau

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Quick takeaways

Mortgage leverage can magnify returns on home appreciation, effectively turning trapped equity into working capital for investments outside real estate.

Reverse mortgages serve as a strategic financial tool for retirees, offering liquidity and tax advantages while protecting heirs from market volatility.

Deep dives

The Financial Benefits of Reverse Mortgages

Reverse mortgages can act as a financial tool that provides security against decreasing home values, as the line of credit grows independently from the property’s market value. Once established, the reverse mortgage offers a growing line of credit that homeowners can access without immediate repayment. This line of credit retains its value during downturns, providing liquidity when needed without the pressure of selling investments in a struggling market. As a result, reverse mortgages offer potential advantages for retirement income planning, providing access to cash flow when traditional investments may be losing value.

Intro

2min

Navigating the Mortgage Paradox

5min

Exploring the Role of Reverse Mortgages in Retirement Planning

2min

Understanding Reverse Mortgages in Retirement Planning

5min

Harnessing Home Equity: Reverse Mortgages Uncovered

16min

Understanding Reverse Mortgages and Retirement Planning

2min

Wealth Formula Network, our online mastermind group, is where we dive into the financial questions that keep us up at night, and one debate that keeps coming up is whether to pay off your mortgage. It’s a complex question, but let’s unpack the math and the emotion so you can decide for yourself.

First, think of your mortgage as a lever: with just 20% down, you control 100% of your home’s value. On a $500,000 property, that means your $100,000 down payment magnifies the impact of appreciation. If home values rise 4% in a year, your equity grows by $20,000—an effective 20% return on your original $100K. Had you paid the full $500,000 up front, you’d still make the same $20,000—but that’s only a 4% return on investment.

Next, consider opportunity cost. Every extra dollar you funnel into your mortgage is a dollar you can’t deploy elsewhere—whether it’s a diversified stock portfolio, a private deal, or even another rental property. Historically, a balanced investment mix has returned 10% annually, comfortably outpacing most mortgage rates and turning “trapped” home equity into “working” capital.

Here’s something else you might not have considered: your mortgage can actually serve as asset protection. Creditors (or an overzealous bank) are far less likely to tap a property that still carries a lien. By keeping a mortgage in place, you make your home less attractive as collateral and shield your equity in other holdings.

So, when you run the numbers, the case for holding onto lower cost debt and investing the difference is compelling. But, math isn’t everything.

There’s intangible value in the day you write “0.00” next to your mortgage balance: no monthly housing payment, no looming due dates, and a deep sense of security—especially as you head toward retirement.

Bottom line—there is no single correct answer. Know the pros and cons, weigh your financial goals against your emotional needs, and choose the path that aligns with both your head and your heart. Make that decision thoughtfully, and you’ll sleep better either way.

Speaking of mortgages, have you ever wondered what reverse mortgages are all about? Those late-night commercials often make them seem like a ways to rip-off seniors. Is there something really useful there?

Well, I invited an expert onto the show to teach us all about them and was pleasantly surprised. Reverse mortgages can be a smart tool for homeowners nearing retirement and something you might consider for yourself someday even if you’ve got other money.

Curious to learn more? Tune in to this week’s episode of Wealth Formula and get the full story.