Reverse Mortgage Guide

Tapping Into Homes Can Be A Pitfall for the Elderly was an article in The New York Times which had such potential to educate. Sadly it receives a failing grade for the reasons noted below.

Too often reverse mortgage stories that appear in the media give the reader misguided information. This major piece, also paints an inaccurate picture.

First: There is a difference between discussing benefits and features of a program with the individuals/companies selling the program. Rarely is this distinction made. The conclusion that is reached is that since some “bad apples” have taken undue advantage of reverse mortgage borrowers, the program itself is bad.

Second: People that have already obtained a reverse mortgage from the many fine firms that offer same, are scratching their heads in disbelief when they read, see or hear some of this stinging commentaries. Their experience does not mirror what is being portrayed in the media.

Third: Those firms/companies that are coercing seniors and/or selling inappropriate financial products should be expelled from the industry.

This article also contained a list of questions with answers. I had a difficult time with the answers because they were misguided.

Question #1 Is a reverse mortgage the best option?

No reputable lender would suggest a loan is right for one in need of say $10,000 for a short-time frame. The answer suggests that it is also not appropriate if you need a large amount of funds. In fact, it is suggested that one should sell the house instead. So the only conclusion that one can draw is that it is never appropriate. Great answer. But of course it is. Just ask the hundreds of thousand seniors that have one. This answer does a great disservice to those that are exploring the program.

Question #2 How Long Do You Expect To Stay In The House?

The article suggests that you must stay in the home for at least 7 years. Really. Why not 10? or 5? or 3? Life happens. I chuckle at answers like these. The day we can control the unforeseeable events of life is the day you can put a number on how long one should stay in the home. Rather, a better answer is that at the time of getting a reverse mortgage the intent should be that you want to remain in the home. Other options should ALWAYS be discussed. But to suggest that a magic number exists is sheer folly at best..

Question #3 Do You Want To Leave Your Children An Inheritance?

The answer presupposes that children have an entitlement to the parents’ home. To those that wish to leave the home mortgage free to their heirs, the reverse mortgage is NOT the appropriate choice. The question remains, how are you going to get by on your fixed income? Hopefully the children that are telling you not to get the reverse mortgage are helping you out.

Today, more of the children are suggesting to mom and or dad that a reverse mortgage is a great thing to pursue. You see, the adult children have a family of their own. They usually can not take care of their parents and their family at the same time. They have to save for their own retirement and for their kids college education, etc. When the parent(s) gets a reverse mortgage, the parent(s) has regained their financial independence and dignity and the adult children do not have to worry about mom and or dad.

Question #4 What are You Going To Do With The Proceeds?

While I agree with the annuity part of the answer, I disagree with the balance of the discussion. I would never tell a client who wishes to travel to places they have heretofore only dreamed about, that it is not an appropriate decision. How dare anyone tell a senior borrower that they can not travel. The real issue is that the individual know their reverse mortgage proceeds are the last pool of money that will be created out of the equity of the home. Yes, it must be used wisely. That determination is for the borrower to make.

Question #5 What Kind of Payout is Best?

This is not an easy answer. It depends on specific circumstances. It is usually not a good idea to take all the money in one sum. The interest is accruing on the full proceeds from day one. However, the real good news is that as circumstances change, the borrower can change how the money is accessed (except if the money was taken as one lump sum).The most popular way is the line of credit, or a combination of the line of credit with a monthly payout. It is wise for a borrower to talk with a top reverse mortgage specialist first before seeking counseling because the specialist can educate the borrowers in advance of counseling. Counseling will then have more meaning for the borrower.

Oh by the way. Piggy Bank Your Home contains 52 questions with answers.

For the full story from the Times, please see: Tapping Into Homes Can Be A Pitfall for the Elderly

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Attorney Dennis Haber is the author of the just-published, ground-breaking book, Piggy Bank Your Home: Tap Into The Power Of A Reverse Mortgage.

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This entry was posted on Thursday, March 6th, 2008 at 3:54 pm and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.