When Reverse Mortgages Make Sense

Reverse mortgages may have been considered products of last resort, but they can make financial sense for the right borrowers who need them, according to a recent article from Houston’s

Whereas in the past reverse mortgages have come under fire for perceivably high fees and instances of borrowers spending down their home equity too quickly, several regulations in recent years have served to make the product safer for consumers, notes the article.

However, it is still largely up to consumers to know exactly what they are getting into, says Bruce McClary, spokesman for Washington, D.C.-based nonprofit National Foundation for Credit Counseling.


“There is a place for reverse mortgages under certain circumstances,” McClary said in the article. “Not all offers are the same. Some seniors need to look at the details and ask a lot of questions.”

The article also features input from One Reverse Mortgage President and Chief Operating Officer Gregg Smith, and National Reverse Mortgage Lenders Association President and CEO Peter Bell, who each discuss certain eligibility qualifications for reverse mortgages. 

When it comes to driving people into the decision to get a reverse mortgage, motivation is a factor.

“There are many reasons people would tap the equity in their home through a reverse mortgage, but if it’s for daily survival, there may be better options,” states.

Read the article.

Written by Jason Oliva

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  • “Reverse mortgages may seem like a product of last resort, but for certain homeowners they can be a viable way to access the equity they have built up in their home.” It seems Donna is making a distinction without a difference. If you can figure out how a HECM that is used as a loan of last resort cannot also be described as a viable way to access the equity you build up in your home, please let me know.

    “Made familiar by famous spokesmen and Robert Wagner and Henry Winkler….” Unless I am mistaken by now Senator Thompson has been on far more ads than the other two combined.

    The writer goes on to say: “Your equity can be paid out monthly for a fixed period of time until you die….” First these are loan proceeds, not equity and the time line does not necessarily at death especially when there are surviving borrowers, but when the home is no longer considered the principal residence of at least borrowers, there is a default, or the filing of a petition of bankruptcy.

    “If you die or the home isn’t the primary residence for more than 12 months, the loan comes due….” Really? The principal residence rule is at least one borrower must occupy the home for more of the year than not. So the test in a leap year is 184 days and in other years, 183 days.

    Here comes another myth: “For starters, expect to pay insurance during the life of the loan. That insurance protects you in the event that your house is worth less than the loan value when it comes due.” The insurance does not protect the borrower at HECM termination; it protects the lender at that time. It is the loan documents themselves (the agreement between the borrower and the lender) that protects the borrower; it is a non-recourse mortgage by the terms of the loan. In any case since 1992, federal law makes all reverse mortgage transactions non-recourse [15 USC 1602(bb)] whether insured by FHA or not. FHA insurance allows HECM lenders to lend out more money at less interest costs to the borrower than standard business practice would otherwise demand.

    Here is a very pessimist way to say that most HECMs end in a transaction transferring title to a third party: “Because you ultimately give up your home when the loan comes due, Sass said it’s not the right choice for someone who wants to leave their home to children or grandchildren.” Yet the home is not “ultimately” given up but generally is sold to pay off the balance due; however, the goal of at least one strategy is to avoid a substantial balance due at termination, the Standby Reverse Mortgage strategy.

    The writer provided no insight as to how a HECM is not a loan of last resort though he referred to that concept. So while some may look at this as a positive article, how can be anything other than negative?

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