Why Not Some Context?
June 10th, 2008
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A good number of people suggest that reverse mortgages are just too darn expensive. While I would love to see the total costs come down, I do not see that happening in the near future. While, the origination fee will come down if FHA modernization is passed in Washington, someone has to convince FHA/HUD to also lower the mortgage insurance premiums on these loans, and not just the origination fees paid to lenders.
Having said this, I think that the real cost of obtaining the reverse mortgage is what one has to give up to get it. Economists like to talk about “opportunity costs”. How expensive is “too” expensive? Is the magic number $18,000, or $15,000 or $9,000 or $5,000? Where should the line be drawn? (This also depends upon value and how much a senior can withdraw.)
I think the focus has to be on other available options. Too many professionals in various fields say to their senior clients, “Do not get a reverse mortgage because it’s too expensive.” When a client tells me this, I ask, “Well what other options did this person come up with”?
Typically the answer is “none”.
I then go through the options with the client. Selling? Moving in with family? Assisted living? Downsizing? REX or Equity Choice?
Another way to look at this is as follows: If you were gravely ill and there was one doctor that could cure you, would you go to that doctor? If that doctor was expensive would you still go to that doctor? I think that the answer would be “yes” in both instances.
Well, reverse mortgages make sense for many people. It is the cure for the financial ills that many are facing. I encourage everyone to stop looking at costs of reverse mortgages without also looking at the costs of alternative options.
Likewise, there are some who look only at positive reverse mortgage features and say, “this is for me”. This is also a mistake. The only way to evaluate the program is to look at all the positives along with all the negatives, see what your alternatives are and then make a determination.
Sometimes you will find that a reverse mortgage is a good option given the realistic choices available. Sometimes it will not be a good choice. Whatever result you find, protect your interests by considering alternative solutions for your financial situation to see which one works best. And get professional help to make the job easier and the result better.
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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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