Reverse Mortgage Malarkey – When Equity Equals Inheritance Who’s Looking Out For Who?
Author: Meghan Busch • URL: http://www.meghanbusch.com November 9th, 2008

With the market’s level of volatility similar to that of a six-year-old at a candy store, it’s no real surprise that the reverse mortgage market is booming. Okay, maybe ‘booming’ is generous, but let’s say relative to the reverse mortgage market’s performance pre-market-downturn… a few more nodding heads are certainly evident.

Retirees (or should-be retirees) who’ve spent a lifetime busting their proverbial behinds to build a comfortable future are finding their retirement fund severely diminished to the tune of 30 to 40 percent. The result? Exponentially increasing difficulty to pay their mortgage, manage increasing medical bills (with decreasing coverage) afford the cost of living, or simply retire when they’d planned.

Fair? Not so. Not for those who deserve better, or who need better… who need to retire for the sheer sake of health.

Reverse Mortgages Explained

And that’s where a reverse mortgage can really benefit homeowners who are 62 and older. Quick definition for those unfamiliar: Reverse mortgages are exclusively for homeowners age 62+ and allow you to eliminate your mortgage payment if you have one, or if you own your home free and clear, you can stay in you home and use your home’s equity like income… and never make another monthly mortgage payment for as long as you live in your home.

But here’s what gets me—as a product of incredibly hard-working parents. There are two major challenges among senior homeowners in need, that stop people from considering a reverse mortgage.

A lack of understanding about the program itself: Benefits, qualifications, risks, fees, myths, etc. This is purely understandable. Without a good understanding of the product, the idea of tapping into your home’s equity without making a payment is so foreign and seemingly surreal that homeowners—particularly older homeowners who are necessarily cautious of fraud—are very hesitant to ‘buy in.’ Makes perfect sense.

But the real mystery to me is The children of these homeowners. The children of these homeowners object to their parents pursuing a reverse mortgage, even when they’re in need of additional income. Why would this be? Because they’re afraid their parents will be taken advantage of?

Not usually.

Most of these programs are government-insured, with guidelines set by the Federal Housing Administration. Not to mention that there are scads of sources from trusted organizations ripe with explanations on the product.

So what’s with the kids? What interest do they have in this transaction? Well, when you get a reverse mortgage, your home’s equity is paid out to you. Which means there’s less equity left in the house once the owner no longer occupies the home. And what’s another word for equity? Inheritance.

It’s this group of protestors that is purely beyond me. As far as I’m concerned, you can dislike the concept of reverse mortgages all day long for any reason… EXCEPT this one. Talking a parent out of a comfortable retirement… or a retirement at all… (funded by their own hard-earned dollars mind you) for the purpose of preserving inheritance is puzzling to say the least.

Some “children” of seniors cite the fact that they were “promised” this inheritance, or they built their financial plan around one day getting it, or that this was the only way they were going to achieve ultimate comfort in their own lives… One inquiry on a public online forum asked, “How can I talk my dad out of a reverse mortgage?” then proceeded to cite personal interests.

If I can interject my own opinion here, all I can say is: “Not in this market” (followed closely by, “You kiss your mother with that mouth?”). First, there are still ways to preserve equity in your home with a reverse mortgage or preserve the money you receive from your reverse mortgage in an interest-bearing account. (A financial advisor or reverse mortgage counselor/banker would have a line on this.)

Second, it’d be nice if we could all agree on this: With the cost of living on the rise and retirement funds getting as much endangerment press as the polar bear (without the heartstrings), senior homeowners deserve the first right to their own money and they deserve to know how they can use it to their benefit without anyone’s interest but their own in mind