Reverse Mortgage

Reverse mortgage is one of the most misunderstood loan options for retirees because most individuals simply have not taken the time to become educated. Some financial experts and planners want the baby boomers and retirees to believe that reverse mortgage is nothing short of the black curse. Let’s be honest. Reverse mortgages are fairly complex; but there is a time and a place when this option makes the most sense for individuals approaching the twilight years of their lives.

One well meaning planner recently was quoted as saying in reference to his ailing mother, “If money is needed for medical expenses for one spouse (usually the wife) and there is a reverse mortgage, there is a danger she will not have a place to live, as well as the potential for loss of social security and pension benefits. So, if a reverse mortgage is being considered, these factors should be weighed,” she says.

A highly regarded retirement expert in New York was quoted in a June 2003 issue of Money Magazine, devoted to retirement investment including the reverse mortgage, posed this question, “If I have a ton of money in my house, but am going to stay there until I die, do I really have an investable asset?” The knowledgeable advisor answered rhetorically, “I don’t think so.”

With a basic understanding of reverse mortgages, our Money Magazine-quoted expert would have known that reverse mortgages have, forever transformed accumulated home equity into an “investable asset” for retirees. Also she could have figured out that reverse mortgages have made home equity a more dependable source of retirement cash flow for all homeowners than stock linked 401K’s and mutual funds.

With a rudimentary understanding of these unique home equity loans our New York quoted financial guru should have understood that a “surviving spouse” can never be forced from her home or lose her “Social Security and pension benefits” in a reverse mortgage transaction.

Properly informed, our expert would have concluded that, given her mother’s long-term (more than five years) need for cash, the government insured reverse mortgage program’s entry cost, high as it may seem at first glance, was actually a small price to pay for a 99.9% foreclosure-proof home equity loan without monthly repayments. Instead, he would choose to saddle his mother, already strapped for cash, with a home loan that would burden her with monthly payments, cost her more in the long term (in contrast to federal government reverse mortgage), and expose her to the hazards of default and foreclosure in the later years of her life.

Here are two lessons to be learned. One: Get your reverse mortgage counsel from a mortgage specialist who has developed an in-depth working expertise on this type of loan. And, know that reverse mortgages are evolving to make them more senior friendly.
Therefore, keep an open mind and do not dismiss any option until you fully understand it.

 

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