- Tom BrezsnyWhat About Reverse Mortgages?
Today’s topic? Reverse Mortgages! It doesn’t take a mind-reader to know what many of you are already saying: “No way. I wouldn’t touch one if my life depended on it!!” (Which ironically, is often the case!) But even if some of you already have it on good authority that they’re a huge rip-off and don’t want to hear about them, let’s revisit the subject anyway.
Here’s the big picture: Today more than 10,000 people in the US will turn 65. They’ll join millions of others who are wrestling with the complex and confusing questions that come along with the process of planning for the last third of their lives.
Since generations are living so much longer these days, more people are caring for their aging parents and observing first-hand, the challenges of living into one’s 80s and 90s. Many of those experiences are poignant and thought-provoking. And powerful reminders that each of us should be planning for our own lives at 80 or 90.
We all exist somewhere along the continuum of life and we are all headed towards the same place, sooner or later. It’s common to hear people say: “I don’t want to be a burden to my kids.” And yet, it’s disconcerting to hear how little in retirement savings, the average American has stashed away.
Which begs the question: Can we afford to grow old these days? Are we as a culture wisely preparing to finance our own longevity? Which in turn brings us back to a more thoughtful consideration of a topic that has the potential to help provide better quality of life in the years ahead – namely reverse mortgages.
What are reverse mortgages? In simple terms they are federally-insured loans that allow homeowners (over 62) to access equity in their primary residences without having to make monthly mortgage payments until they die. At first glance, that’s way better than an equity line, if you can even get one of those these days.
But since everything in life has a price – including money – we’ll remind ourselves that unlike conventional mortgages where the loan balance is paid down in regular monthly installments, it’s the opposite with reverse mortgages: The size of the loan increases as deferred interest payments are added on to the principal amount over the life of the loan. In the end, it all gets paid back.
Hmm. Since reverse mortgages aren’t free, that makes them a trickier proposition. And there are reasons why they developed such a bad rep early-on in their history. Just as there are reasons why more and more financial planners are beginning to view them as viable long-term planning tools for aging-retirees.
We’ll explore more next week…
