The Reverse Mortgage – 62 & over – Is it a Wise Option?

As the Reverse Mortgage ads heat up (conventional mortgage rates moved up and refinances became scarcer) due to a new strategy by the big lending house hounds, to attract business, I wanted to address a few things regarding this very important mortgage product.  The Reverse Mortgage in general is a fantastic product, for the right people.  If you call up the local TV ad sales person who has a script in hand, they will not know anything about retirement, tax or financial implications, or the art of mortgage planning integrated with your personal financial goals and retirement plan.  “If you are 62, you should have this product” goes the script. And then the numerous benefits are rolled off the tongue much like the Storage Wars auction on TV, which I happen to enjoy on occasion…… Yup!

The Reverse is not necessarily a last resort loan as many believe, just to keep the client in the home, but rather it is a financial tool that can assist a person in not drawing down their 401K, IRA’s, or savings; the retirement assets of course, subject to taxation whether it is voluntary distributions or RMD’s (required minimum distributions).

The challenge with this product is that the required HUD counseling (over the phone for 1 hour) is pretty much a FAQ session where the counselor simply lays out the options and answers a few questions. Other than that, the “salesman” (referred to as a Reverse Mortgage Specialist, and there are even certifications bantered out to impress you during the “sales pitch”) will try and convince you how easy and non-qualifying this product is, along with the stream of tempting uses of the equity in your home towards vacations, toys, better life style, and possibly a pitch for your favorite charity tossed in for good emotional measure.

house-of-moneyHowever, it is critical to understand ALL the components of this product and whether it is a wise decision to obtain it or not.  Maybe it would be great for a client, but just not now, maybe a year from now…..Only by working with a professional mortgage planner can a family really weigh the pros and cons of this type of loan product.  Often my questions relate to “how other family members, if involved, feel about the reverse; are they able to attend a meeting to discuss the product and it’s options; what are the type and amount of current assets, liquid and non-liquid of the client; what are the plans for living in the current property (you must occupy the residence though there is no stipulation on how much you can travel, or vacation, etc.)  Does the client understand they are “still owners and on title” of the property, and still responsible for property taxes, insurance, HOA if applicable and maintenance; are they aware that at this time there is no deficiency or liability if in the unlikely event the loan exceeds the value of the property when client moves out or departs.  Are there any repairs or modifications to the home that need to be done at some point for the convenience of the client, such as handrails, or wheelchair access, etc.?  The Reverse with adequate equity often can distribute monthly income just like social security, (for virtually any purpose) except it is NOT taxable, and there are NEVER any monthly loan payments while living in the property….. We have only scratched the surface here and as rules continue to change (at end of year several changes occurring and more qualification likely) the Reverse Mortgage will be getting more difficult to obtain.

In conclusion, if you or anyone you know has an interest in the Reverse Mortgage product, please contact me for a free interview and analysis of the situation so we can be sure you make the best and wisest decisions.