We are seeing more and more commercials and advertisements about reverse mortgage on TV and in print. We’ll come right out and say it that we are not big fans of reverse mortgages.
Why do people take out a reverse mortgage?
Often the reason people do a reverse mortgage is because they didn’t have a good financial plan, which we call a financial blueprint, and they are in need of more money to live off of. A lot of these advertisements are playing on the emotion of the elderly who are in need of more money.
Another reason that people take out a reverse mortgage is that people may have had a good financial plan but they did not follow it, and they had a horrible spending habit that. Ignoring their plan, they continued to spend their money and now they need a reverse mortgage to give them more money to support their spending habit.
The history of the reverse mortgage
Legally, reverse mortgages have been around since the 1950s. Reverse mortgages really took off in 2009. After the financial crisis in 2008, many retirees were not able to keep living the same lifestyle they had been living. Because they had a good amount of equity in their homes, they would take out a reverse mortgage so they could support the lifestyle they were use to living. Often they were taking lump sums from reverse mortgage and using the long term value on short term items. If they used it to pay off credit card debt, that was just robbing one part of your assets to pay for another (more in the video).
The allure and danger of a reverse mortgage
What makes a reverse mortgage so enticing is that in many advertisements they say you don’t have to pay it back until you die or move. But the expense component is through the roof. The interest rate is 2.5% higher than the national average on a mortgage and that interest rate, that you are not paying, it’s compounding. The foreclosure rate is also double that of the average mortgage foreclosure (more in the video).
Many times the older spouse living in the house can get a higher payout so the reverse mortgage is in their name. If that person dies, the surviving spouse is left with an overwhelming debt and they can possibly lose their home. This could be an additional danger as their children were counting on selling the house and using that money for assist living and care for their parents (more in the video).
Why are we seeing so many advertisements about reverse mortgages?
Sadly, most of the people taking out a reverse mortgage have the least ability to make informed decisions. That’s why we are seeing so many commercials on TV with “All American” celebrities as spoke persons for the reverse mortgage companies.
Please share this with any of your friends and family who are thinking about taking out a reverse mortgage because it could threaten their financial situation as well as their heirs.
We would be happy talk with you or anyone you refer to us about the pitfalls of a reverse mortgage. Comment below, call us at (205) 989-3498 or email us here.
Greg Powell, CIMA
Ashley Page, JD, MBA
Senior Vice President