Are Reverse Mortgages A Bad Thing?

Are Reverse Mortgages A Bad Thing?

Continuing the discussion…  about a tricky subject known to have a somewhat dubious reputation out there in real estate land, namely reverse mortgages.   

Rest assured, I’m not trying to hawk them here.  Since they’re actually designed to provide options that allow older homeowners to stay in their homes longer,  rather than selling them, there’s no selfish reason why any Realtor would be promoting them.

That’s a job for the long list of celebrity spokespeople that the reverse mortgage industry keeps trotting out! Over the years, senior luminaries like  Robert Wagner, Tom Selleck and Henry Winkler have all stepped into the fray and tried to rehabilitate the negative image that reverse mortgages have. What could be so wrong that even The Fonz himself couldn’t make reverse mortgages seem cool?

Here are the common complaints people seem to have: 

Too Much Temptation: Goes something like this… no sooner do those old timers get their hands on a big chunk of cash than they suddenly go hog wild on Geezer spending sprees, round-the-world cruises and wild bus junkets to Chukchansi Casino! 

Family Issues: What happens when the kids are already counting on inheriting their parents’ home free and clear and on a stepped up basis?  Aren’t spoiled kids entitled to the keys to the house with no strings attached? Even if their parents have to go without and survive on tv dinners?

Worries About Spouses: What about Dad’s new younger wife? Will they keep her off the loan and off the title of the property too? What happens when Dad dies? Is step-Mom out in the cold? (Relax, new protections for surviving spouses have been written into reverse mortgage regs.)

Who’s on Title?: It is simply not true that the lender receives title to the property when the mortgage goes into effect. No one quite knows where that notion came from. (Probably a disappointed kid who didn’t get the inheritance they were expecting.) Fake News!

Foreclosures: If people borrow  reverse mortgage money and  don’t pay their property taxes and insurance, they can lose the property to foreclosure.  Of course, if they can’t pay their property taxes in the first place,  they’re probably going to lose their properties anyway.

High Upfront Costs: Costs have come significantly down on reverse mortgage options. They can be paid upfront, wrapped into the loan or paid on the back end. But borrowing money costs money. No way around that. Just check what that last conventional refi cost you.

Generational Aversion to Debt:  There’s a growing generation “gap” between aging baby-boomers and their greatest and silent generation parents  and how they view the whole subject of taking on debt. We’ll talk more about that next week.