I recently received an article from a reader who asked my opinion on it. The article was about reverse mortgages and in general, the article was very critical. The reader was contemplating getting a reverse mortgage and was very concerned about what he read in the article and questioned whether he should be proceeding or not.
The gist of the article was that reverse mortgages are shams and no one should get one. The article cited three people who did get reverse mortgages and then a few years later lost their homes. As I read the article one thing that became clear to me was that in each of those three scenarios the people were not good candidates for reverse mortgages and as far as I was concerned, from the beginning, should not have gotten a reverse mortgage. If the tone of the article was that a reverse mortgage is not for everyone, I would certainly agree. In fact, all the reputable people I know in the reverse mortgage industry would also agree with that statement. However, the article basically said that reverse mortgages should be avoided at all costs and that is something I don’t agree with. Reverse mortgages can, when used correctly, be a very effective financial tool that benefits seniors. Of course on the other hand, when a reverse mortgage is not used correctly, problems will develop.
In today’s world we are bombarded with offers, deals, and opportunities. All too often because of the nature of sales and advertising, it appears that every one of these products or deals are good for everyone. Unfortunately, when it comes to the financial world, there is no one size fits all solution. Everything depends upon your individual situation. For example, one mutual fund may fit your situation while that same mutual fund would be inappropriate for your next door neighbor. When it comes to personal finance, what everyone needs to keep in mind is that everything is dependent upon your individual situation. Never let anyone tell you that some investment, product, or strategy fits everyone, because it does not. When it comes to personal finance, everything is always dependent upon your individual situation and your individual goals and objectives.
With regard to reverse mortgages, where do they make sense? As far as I’m concerned, they make sense for people who plan to be in their homes long term and need some extra cash either to retire debt (such as pay off a mortgage) or for someone who needs some extra cash flow to maintain their lifestyle. On the other hand, in my opinion, reverse mortgages don’t make sense if you’re going to use the money for investment purposes such as buying an annuity or to use the proceeds to loan to someone.
Like all financial products and strategies it is important to use them wisely. Particularly, for something like a reverse mortgage where it is for the long run, it is important that you take your time, not let salespeople push you in one direction and never be afraid to seek independent advice. Remember, time is on your side and nothing has to be done yesterday.
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 -.