Reverse mortgages may be a good option for particular seniors who find themselves strapped for cash, but should likely still be among a senior’s final considerations when coming up with a financial plan in retirement. This is according to consumer finance commentator and syndicated radio host Clark Howard, describing reverse mortgages on his website Clark.com.
In a guide to reverse mortgages primarily authored by the Clark.com staff last week, Howard comments on the inquiries that he has received related to reverse mortgages over the past two decades on his syndicated radio and television shows and urges caution for anyone who is considering the product.
“Reverse mortgages have been a source of calls into our show for at least a couple decades now,” Howard says. “The market has been dirty forever. You have to be so very careful. I know the ads that appear with the older actors who have high likeability ratings, but let me tell you, there are a lot of snakes in the grass.”
While that sentiment is present throughout Clark’s characterization of the product, he also describes how a consumer who is determined to tap their home’s equity through a reverse mortgage would benefit from a lot of research.
“If you want to do this, you need to shop, shop, shop. Because not all lenders are created equal,” Howard says. “The fees vary tremendously from one [lender] to another.”
Citing a December 2019 column at LendingTree, Clark.com describes reverse mortgages as “packed with fees,” advising prospective borrowers that they can expect to pay a lender fee of whichever figure is greater between $2,500 or 2% of the first $200,000 of a home’s appraised value.
“If you have an appraised value greater than that, expect to pay an additional 1% of your home’s value above $200,000,” Clark.com’s staff writes. “Other fees include closing costs, upfront mortgage costs and loan counseling, according to LendingTree.”
The staff describes Howard as “not keen” on reverse mortgages, indicated by his general characterization of the product category. Instead of using a reverse mortgage, Howard and his staff recommend either selling the home and downsizing; refinancing; taking out a Home Equity Line of Credit (HELOC) or home equity loan; or the senior to sell the home to their own family.
Still, that doesn’t mean that a reverse mortgage isn’t an appropriate option for some, Howard says.
“If you’re short of cash in retirement, a reverse mortgage may be an option for you — but it’s a last option,” Howard says. “The time to use it is when you’ve come up with every other way to pay for monthly expenses and you’re still short of money.”
Read the column at Clark.com.