Reverse Mortgages for Seniors: Legal Robbery or Legitimate Option?
It’s not difficult to see why reverse mortgages for seniors have become so popular of late.
For starters, most of us are approaching retirement with less money in the bank than we hoped for. This is partially due to the Great Recession eating into our savings, although, if we are honest with ourselves, we probably share part of the blame for not putting more away when we could.
Another factor impacting our ability to live on a fixed income is the low interest rate environment in which we live. Most of us don’t feel comfortable keeping our retirement money in stocks, or even company bonds. Unfortunately, money market and government yields are at near all-time lows. So, the amount that we will receive every money is, once again, lower than we might have hoped for.
All of these factors are leading us to look for other options to fund our retirement. One of the most popular – and perhaps least understood – options is getting a reverse mortgage.
Since there is so much hype – both positive and negative – around reverse mortgages, I wanted to take this opportunity to open the discussion up to the group. Specifically, I’d like to hear what your perceptions are about reverse mortgages. Then, I’d like to hear from those of you who decided to take this option.
First, let’s cover the basics. Then, I’d love to hear your opinion!
What is a Reverse Mortgage Really?
Reverse mortgages are a simple idea. Basically, they allow older adults to take a loan out against their home’s equity. It doesn’t require the homeowner to move and the money from the loan can be paid monthly or as a lump sum.
What Are Some of the Perceptions About Reverse Mortgages?
It would be an understatement to say that people have strong opinions about reverse mortgages. Some people consider them to be a thinly veiled attempt for lenders to take control of the homes of unsuspecting seniors. Others see them as a legitimate option for older adults who need to tap the equity in their home, but, don’t want to be forced to move.
So What’s the Truth? Are Reverse Mortgages Evil?
I’m not a financial expert and I am not offering financial advice, but, I’d like to share my opinion on this question. Are reverse mortgages evil? Not really. At least, the reverse mortgages from reputable companies aren’t evil. Confusing? Yes. Expensive? Definitely! But, they are not necessarily evil.
Contrary to popular opinion, in the U.S., the lender doesn’t need to take over the title to your home for you to get a reverse mortgage. In addition, under normal circumstances, you can’t be evicted from your home. There are exceptions to this, of course. For example, if you stopped paying your property taxes, you might have problems. Once again, a qualified lawyer should check all of your paperwork to make sure that you are getting a fair deal.
On the other hand, reverse mortgages aren’t all rainbows and ice-cream either. One of the biggest disadvantages of reverse mortgages is that they can be pretty darn expensive to put together. For example, according to this article, taking out a reverse mortgage can result in $30,000 – $40,000 in fees. Yikes! These costs are typically included in the loan amount, but, it’s still a bitter pill to swallow!
One thing that most experts agree on is that getting a reverse mortgage should be a last resort. This is not because they think that someone is going to steal your house. It’s because reverse mortgages are expensive. In addition, if you spend the money from your reverse mortgage too quickly, you might end up in an even worse situation than when you started.
Personally, I think that reverse mortgages are a tool – nothing more and nothing less. Like so many things in life, there will be good lenders and bad lenders, fair deals and one-sided deals.
The most important thing is to make sure that you get independent, professional advice before making any financial decision. Getting a reverse mortgage definitely falls into this category.
What have you heard about reverse mortgages? Do you know anyone who feels like they were taken advantage of when they signed up for a reverse mortgage? Conversely, do you know anyone who feels like they benefited from taking out a reverse mortgage? Please join the conversation.