Q Dear Rick:
I met you at a speech you did a few months ago and you told me that I should look into a reverse mortgage. I contacted a company you recommended and I was set to go through with it but when I mentioned it to my financial advisor, they said they did not recommend it. Their reasoning was twofold. The first issue they said was that if I had to go to rehab or if I wanted to spend the winter outside of Michigan that I could lose my home. The second thing they said was that upon my death, if the value of my house was worth less than the balance of the mortgage, that my children would be held responsible. I called the reverse mortgage company and they assured me that my advisor was wrong. I guess what I want is a second opinion as to whether the reverse mortgage company or my financial advisor is right. I’m sure you don’t remember my situation but briefly you were recommending that I get a reverse mortgage and to use the proceeds to pay off the existing mortgage on my home. Currently, my mortgage is eight percent. I’ve tried to refinance but at my age it is difficult. When you mentioned a reverse mortgage I thought it would be a great idea because if I did not have to make a mortgage payment, my financial situation would be greatly improved.
Thank you for the help.
Nora
A Dear Nora:
Plain and simple, your financial advisor is wrong on both accounts. Unfortunately, when it comes to reverse mortgages, there is a lot of misinformation and disinformation and that is unfortunate because for seniors, a reverse mortgage can be a very effective financial tool. Reverse mortgages are not for everyone, but in a situation like yours, I still believe it would be an excellent solution to allow you to stay in your home and at the same time, increase your cash flow.
With regard to having to go rehab or if you spent the winter elsewhere, there is still no issue. If you had to go into rehab and you were there for less than a year or if you spent the winter elsewhere, there is no effect on the mortgage. In addition, when you pass, your loved ones are not responsible if the house has declined in value. In fact, your loved ones have options at the time of your death. If the home has increased in value they can sell the home, pay off the mortgage and keep the excess. On the other hand if the home has declined in value they can turn the home back to the mortgage company and walk away free and clear.
Are reverse mortgages good for every senior – of course not! There are many situations where a reverse mortgage would not make sense. That is why it is always important to deal with a reputable company. Celebrity endorsements are bought and paid for and thus, don’t mean much. The key is to use a reputable reverse mortgage company and one that’s not trying to push you into something that doesn’t fit your individual situation. With a reverse mortgage, it is more important than in a traditional mortgage to deal with a company that is reputable and one that doesn’t pressure you into doing something you don’t feel comfortable with.
Paying off mortgages or high interest rate charge cards, providing needed cash to maintain your lifestyle or potentially even helping a grandchild with college, can all be good uses of a reverse mortgage. On the other hand, using proceeds from a reverse mortgage to make speculative investments or to use the proceeds to loan money to friends, may not be the best uses for a reverse mortgage. The bottom line, reverse mortgages can be an excellent financial tool when used correctly. However, reverse mortgages can also cause all sorts of financial headaches if they’re not used in the right situation.
One last note, don’t forget that the key to a reverse mortgage is to find a reputable company that is more concerned with assisting you as opposed to selling you something.
Good luck!
Rick is a fee-only financial advisor. His website is www.bloomassetmanagement.com. If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com