Motley Fool: 5 Reasons To Get A Reverse Mortgage Now

The ability to purchase a second home and retire early are two of the top five reasons consumers should consider a reverse mortgage “right now,” according to a recent The Motley Fool article.

“We’re all worried about our retirement,” writes Buck Wargo. “But many of us have an ace in the hole to turn to help fill in the gaps of our retirement and help us envision the dreams that we have once we stop working: A reverse mortgage.”

Other reasons to get a reverse mortgage now are to start a new career, travel and for peace of mind, Wargo says.

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“The reverse mortgage is such a realistic vehicle for a lot of people,” he says, noting that it can offer a line of credit that grows over time and is available when needed.

For example, if someone has a stroke or is diagnosed with dementia, the reverse mortgage can be leveraged when unexpected financial hardships occur.

“Not everyone understands what a reverse mortgage actually is and there is a lot of misinformation out there, even in otherwise reputable and reliable media sources,” he says. “It’s only a mortgage that has the most flexible repayment terms there are. You can keep on making your mortgage payments for now, but you know if you lose your job, your health or you have to stop making payments, you aren’t in danger of going into foreclosure.”

Read The Motley Fool article here.

Written by Cassandra Dowell

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  • The five reasons are some of the least prudent reasons seniors should get a reverse mortgage. For example, buying a second home with a reverse mortgage not only means that the investment is leveraged but the interest is not deductible for income tax purposes except for the interest on up to $100,000 of home equity indebtedness as defined in Internal Revenue Code Section 163(h)(3)(B). Such interest is not interest on home acquisition indebtedness as defined at Interest Revenue Code Section 163(h)(3)(A).

    Watching the performance of second homes during the recent Housing Depression clearly demonstrated the risk of leveraged investing in acquiring a second home. Not only is it risky but acquiring a second home after age 62 is considered by most responsible financial planners something most mass affluent seniors should avoid altogether especially when considering additional property charges and maintenance.

    In a heading titled “Retire early,” the author encourages seniors to retire early and use the amount they formerly used to pay the mortgage to pay living expenses and use reverse mortgage proceeds to contribute to retirement plans. What nonsense! If the senior is retired, where is the money coming that would otherwise pay the mortgage, Social Security or retirement income? And if senior is not working how in the world is the senior making contributions into a retirement plan.

    In the section titled “New career,” the author discusses going into business for one’s self. Most small businesses go under in the first two years. Yes, part of the reason most small businesses go under is due to a lack of cash which must be repaid right away but it is also due to a lack of revenues. A reverse mortgage will not make up for a general lack of revenues. In most cases this is leveraged investing at its worst.

    While many will find a HECM line of credit an excellent choice for peace of mind, simply taking proceeds to have cash reserves is a horrible idea since most seniors cannot invest in readily marketable assets (liquid assets) which are as safe as a cash reserve and yet will earn income at the rate that costs are accruing on a reverse mortgage. We call this negative arbitrage.

    As to using loan proceeds to pay for travel in relation to prudence, they are not normally put together in the same sentence. To say the author missed the mark is to be very kind to the author.

    (The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)

    • Well said, James Veale. In my day to day phone calls from perspective borrowers, absolutely NO ONE lists the reasons mentioned in “the Motley Fool” article for inquiring about a reverse mortgage. The typical reverse mortgage borrower has much more common sense.

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