Reverse Mortgages

Reverse Mortgages


The second category of commercials I find irritating are those for reverse mortgages, always touted by a well known personality who tells you that they will enable you, the homeowner, to “live the life you deserve”.  Included in this group of personalities is Robert Wagner, better known to some as the widower of Natalie Wood, James Garner from Maverick and The Rockford Files, Fred Thompson from Law and Order, Wayne Rogers from MASH, and last, but not least, Henry Winkler, “The Fonz”, from Happy Days, one of the few individuals whose TV persona has a longer biography than the person who plays him.


None of these personalities knows what you deserve, but the thing that troubles me most about these commercials is that none of the actors involved can possibly know anything, or at best very little, about the intricasies of “Home Equity Conversion Mortgages” – the original name of Reverse Mortgages.  Granted, Fred Thompson’s mother is said to have had one because her wealthy actor son refused to take care of his mother in her old age, and Henry Winkler had a Master’s Degree from Yale (although it was Yale Drama School), but it takes much more to comprehend the involved financial formulas required for reversed mortgages.


I find little comfort in the fact that these mortgages are structured by the Federal Housing Administration, another agency brought to us by Congress.  You know the same Congress that gave us Freddie Mac and Fannie Mae which in turn brought us the housing bubble and collapse during the past few years not to mention enumerable foreclosures.


Reverse mortgages do, however, serve the purpose of enabling an elderly person to stay in their home.  In fact, you must be elderly to qualify for one.  That is if you consider 62 elderly.  Next, your home must be clear of pre-existing liens, although the new mortgage can be partially used to pay off existing ones.   In addition, the Reverse Mortgage cannot be foreclosed, but the homeowner must pay all taxes, insurance, maintenance, and, in some instances, flood insurance.  An attractive quality for some homeowners is that there is no credit score and other qualifying standards since the lender pays the borrower instead of the typically reverse arrangement.  Although trailers do not qualify, most other single family homes do, as well as doubles if one is occupied by the borrower.


But all is not roses.  If the borrower enters a nursing home,the terms of the reverse mortgage may require the property be sold and the obligations of the mortgage holder cease.  In addition, there are usually steep upfront fees and the interest rate paid to you as the borrower is usually less than stellar.


Finally, the mortgage becomes due, if not sooner, upon death and that event, in addition to being untimely to you, may be untimely for refinancing or sale of the property.  Although this might be irrelevant to you because of the benefit of the reverse mortgage, don’t sign up until you know the downside.  Talk to your attorney or financial advisor and make certain this is the right product for you.  We realize that staying in the family home is attractive to most people, but downsizing is not always a negative.  Selling that large home where you raised your children may scratch that nostalgic itch, but it may not be in your best interest.  A smaller home means lower taxes and utility bills and usually less maintenance costs as well.  Assisted living facilities also meet the medical and personal needs of the elderly rather than constantly depending on your children or friends.  Regardless of the attraction of remaining in your home, consider these alternatives before making a choice that is not going to stand the test of time.

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