Skip to content
Menu
Reverse Mortgage Information
  • Site Menu
    • Home
    • A Reverse Mortgage Could Provide a Comfortable Retirement
    • Advantages and Disadvantages Of A Reverse Mortgage
    • AFR – Applicable Federal Rate
    • Home Equity Loan With a Reverse Mortgage – Your Home Pays You
    • Met Life Predicts Surge in Reverse Mortgages
    • Pay off Mortgage Question
    • Retirement Income Planning and Home Equity
    • Reverse Annuity Mortgage – Tapping Into Your Equity
    • Reverse Mortgage – Providing Peace of Mind Without Sacrificing Safety or Security
    • Reverse Mortgage Counselors – Michigan
    • Reverse Mortgage Definition
    • Reverse Mortgage Interest Rate
    • Reverse Mortgage Payment Options – Are You Prepared to Self-Insure Life Expectancy?
    • Reverse Mortgages – A Tax Free Income For Senior Citizens
    • Reverse Mortgages – Learn The Facts First!
    • Reverse Mortgages – Are They Just Plain Wrong?
    • Reverse Mortgages: Information You Need to Know
    • The Reality Retirement Calculator – assessing needed income for retirement
    • Use a HELOC to Step Into a Reverse Mortgage
    • Privacy Policy
    • Contact Us
    • Disclaimer
Reverse Mortgage Information

Reverse Mortgages – Are They Just Plain Wrong?

Posted on March 13, 2023

A very candid commentary on reverse mortgages appeared recently in , the Dow-Jones online personal finance ezine. Writer Thomas Kostigen makes clear his view of reverse mortgages:

“They are notoriously bad deals for people in all but the soft sense: they get to live in their homes for the rest of their lives….But the poignancy of people’s circumstances is trumping sound financial planning. A quick thumbnail calculation shows you could gain more by selling your home, moving into a rental or less expensive house — and putting your money in ultra-safe Treasury bills. This would eclipse any reverse mortgage calculation.”

He’s basically right, too. In a strict economic sense, most people would be far better off selling the homestead, wisely investing the proceeds, and living out their lives in a smaller home or rental unit. They would avoid stiff loan origination fees, insurance premiums, and they would have immediate access to 100% of their home’s equity.

But the strict economic analysis falls short on two counts:

  • First, seniors’ desire to stay in their homes may be a “soft” variable in a purely rational analysis, but it’s a hard reality that cannot be so easily dismissed. Many surveys have clearly shown that for most seniors, the desire to remain in their home is remarkably strong. Evidence is readily found throughout the nation’s neighborhoods – seniors continuing to live in oversized, deteriorating homes despite the fact they might be better off selling.
  • Second, the notion of selling the home and investing the proceeds is a strategy for self-insuring against a longer than expected life. If done reasonably well, you may certainly come out ahead – just as a prudent employee may come out ahead with a defined contribution pension in lieu of a company-guaranteed defined benefit pension. And, yes, the option of a purchased life-annuity is always there. But for many people, the comfort of a U.S. Government guarantee that you’ll never outlive your resources – a feature unique to the home equity conversion mortgage (HECM) program – will trump hard-nosed economic analyses everytime.

So, are reverse mortgages just plain wrong? A financing tool that perhaps shouldn’t even exist?

I don’t think so. Reverse mortgages fill a niche. But they are extremely costly loans that should be considered only after all other options – including regular home equity financing, selling and moving, intra-family financing – have been thoroughly explored.

 

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Recent Posts

  • Reverse Mortgages – Are They Just Plain Wrong?
  • Retirement Income Planning and Home Equity
  • Home Equity Loan With a Reverse Mortgage – Your Home Pays You
  • Reverse Mortgage Definition
  • Reverse Mortgages: Information You Need to Know
  • Pay off Mortgage Question
  • Reverse Mortgage – Providing Peace of Mind Without Sacrificing Safety or Security
  • Reverse Mortgage Interest Rate
  • Reverse Mortgages – Learn The Facts First!
  • Reverse Mortgage Counselors – Michigan
  • A Reverse Mortgage Could Provide a Comfortable Retirement
  • Reverse Annuity Mortgage – Tapping Into Your Equity
  • The Reality Retirement Calculator – assessing needed income for retirement
  • AFR – Applicable Federal Rate
  • Advantages and Disadvantages Of A Reverse Mortgage
  • Met Life Predicts Surge in Reverse Mortgages
  • Use a HELOC to Step Into a Reverse Mortgage
  • Reverse Mortgage Payment Options – Are You Prepared to Self-Insure Life Expectancy?
  • Reverse Mortgages – A Tax Free Income For Senior Citizens

Categorized Tag Cloud

reverse mortgage v bank home equity loan Reverse Mortgage eligibility borrowing against a home’s equity Should we pay off our mortgage? Spot Loan program line of credit traditional home equity loan How much does a Reverse Mortgage cost Before you pay off your mortgage HUD reverse mortgage HUD-approved lenders What else should I know about Reverse Mortgages? As a monthly income
©2023 Reverse Mortgage Information