This New York Times article points out some of the drawbacks to reverse mortgages. These include high fees and pressure from salesmen to invest in high risk investments. Not all reverse mortgage salesmen are charlatans, but it is important to fully understand what you are getting yourself into with a reverse mortgage. The things to consider are what are the fees the mortgage company will charge, what is the interest rate and how much money are you going to be able to take out of your home. Also important to consider is whether you want to leave the home to your heirs or beneficiaries. If you do, a reverse mortgage can create a situation where the payoff is greater than the value of the property upon your death. If you are considering a reverse mortgage transaction, talk with your estate planning attorney and your financial advisor first to see if the mortgage you are considering is a good deal and what your other options might be.
Here’s the link:
Tapping Into Homes Can Be Pitfall for the Elderly – New York Times
Good advice, Michael. I do want to clarify something, if you don’t mind. Toward the end of your article, you stated, “a reverse mortgage can create a situation where the payoff is greater than the value of the property upon your death.” Yes, this can be true, however, it’s worth noting that if that is the case, the heirs will not be called upon to pay the difference. Reverse mortgages are non-recourse loans, so the obligation is satisfied with the fair market value of the home.
Even if it’s less than the owed balance.
Other than that, I agree with just about everything you said. There are high-pressure salespeople out there, and I don’t care what you’re looking to buy, that is a sign that the sale is more important to them than genuinely serving the client. Such salespeople should be avoided.
Comment by Corey Matelli — March 5, 2008 @ 5:17 pm |
Good point about the non-recourse nature of these loans Corey. The main thing I would like to leave readers with is that a reverse mortgage can mean that the home won’t be an asset that is distributed to the heirs or beneficiaries, but has to be sold to satisfy the mortgage.
Comment by Michael Smith — March 5, 2008 @ 5:40 pm |
Hi Michael.
It’s not an absolute that one must sell in order to satisfy a reverse mortgage obligation. Just like any mortgage or lien against the home, heirs may secure their own financing and keep the home. In most cases, there is retained equity in the home after the last borrower has left the home. There is typically still something to be left behind for the heirs, even if they choose to sell the home. I know we’re seeing depreciation in home values now, but history shows that in the long run, homes appreciate in time. This, in addition to the fact that most reverse mortgage borrowers do not max out their reverse mortgage funds means that heirs likely will still receive an inheritance.
That being said, most adult children are honorable enough to their parents that they realize the money was earned by, and does in fact belong to the parents, first. If they need it to live their golden years in comfort, most children are supportive. If they’re more concerned about an inheritance, maybe they should offer to pay for their parents’ expenses or have them move in with them.
Comment by Corey Matelli — March 5, 2008 @ 6:05 pm |
Knowledge of a mortgage is very importaant with this world crisis. Great topic!
Comment by hypotheek check — August 7, 2009 @ 2:25 am |