Column: The Reverse Mortgage Paradox Traps Homeowners

While various news articles continue to tout how reverse mortgages can help struggling Americans through their retirement years, a recent ABC News column expresses a more cautious attitude, noting that “reverse mortgages may back you into a corner.”

TV commercials and celebrity spokesmen — including former Sen. Fred Thompson, of American Advisors Group’s longstanding reverse mortgage advertising campaigns —  gloss over the downside of homeowners drawing the equity out of their homes without any monthly payments, suggests certified financial planner Byron L. Studdard in his column.

Ads for reverse mortgages have become more commonplace, since the market meltdown of 2008-2009 sliced into the retirement resources of millions of Americans. In fact, 26% of 50- to 64-year-olds have not saved any money for retirement, and the same applies to 14% of people 65 and older.

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So some homeowners see reverse mortgages as a way to solve their cash problems and also stay in their homes.

“Yet, compared with other types of loans that use homes as collateral, some reverse mortgages can be costly because of interest rates charged and various up-front fees,” Studdard writes.

Considering the costs of upkeep for a home, moving is often a good idea, he says. Why pay to heat and air-condition empty bedrooms? Taxes and maintenance also take a toll on retirement income. Many people don’t consider these downsides of staying because they’re so sentimentally attached to their homes that they can’t think objectively about the costs of staying there.

“The fundamental paradox of the reverse mortgage market is that because people won’t sell the homes they largely or wholly own, they need a reverse mortgage to stay in them, and then they’re trapped financially and otherwise; they can’t afford to pay, so they must stay,” Studdard writes. “If you own your home, selling it and getting an apartment or a small condo can free you from routine upkeep that can grow more burdensome as you age and free up cash needed to pay retirement expenses.”

To read the full column, click here.

Written by Emily Study

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  • While the article is somewhat insightful and includes things that seniors should consider when shopping for a reverse mortgage, the article lacks for not covering the alternative of downsizing with a reverse mortgage. It seems the CFP is writing with a negative agenda regarding reverse mortgages not with an agenda about what is best for a senior.

    The article demonstrates why a senior should seek the advice of someone like a CFP before getting a reverse mortgage. Originators should welcome the opportunity to work with a senior who is well advised even if the advice has a negative slant. Even though most of us hate such challenges, these opportunities also allow us to hone in our skills at showing what a great retirement cash flow product a reverse mortgage really is.

  • Good of Mr. Studdard, I wonder if he’s Reuben’s brother, to encourage homeowners to become renters and to rely upon the kindness and charity of landlords who will promise not to routinely raise their rent or evict them arbitrarily. All the homeowner needs to do is box up their lifetime of possessions and haul it all to the goodwill and move away from long time, trusted and reliable neighbors and familiar surroundings and replace them with complete strangers.
    I would love to spend a few hours with Mr. Studdard to help him better understand not only reverse mortgages but also the aging process.
    I will make myself available.

  • The financial planning community takes emotion out of housing decisions. The reverse mortgage community embraces it. It appears there will always be a disconnect.

  • Just what every senior wants…….leave my home for a rental apartment.
    I doubt the author is old yet. We all want to stay in our homes as long as possible. I watched my mother as she aged. The most important thing to her was staying in her home. Reverse mortgages give the elderly a tool to do this. With equity they can afford to hire out the jobs they can no longer do (maintenance around the home). Unused rooms can be shut off easily if not in use. Many states offer discounted real estate taxes to seniors especially if of low income. So the tax issue is not valid in my opinion.

    And last but not least, give seniors some credit. They are not dummies just because they got old and didn’t have enough money for retirement years. Not everyone is born with a silver spoon in their mouth. Years ago when our cost of living was reasonable seniors living on Social Security could live a reasonable lifestyle. Nowadays with the cost of living so high it is more difficult for seniors and working people alike.

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