Back in 2012 during a very bleak period in real estate I took a year off to sell reverse mortgages and held licenses in 24 states so heard an earful of sorrowful stories from seniors who were in dire straits. I’ve heard of children refusing to support their parents desire to get a loan on their homes simply because they viewed their inheritance as more important than their parents financial needs. They neither helped their parents nor offered to find another solution to their financial problems. Now this isn’t to say that the Home Equity Line of Credit (HECM) is the right solution for everyone but for some it’s a godsend.
For those of you unfamiliar with HECM’s the basic idea is of getting a loan against the house that either pays off the existing mortgage or creates a mortgage that is due upon the exit of the last principle owner. It, in effect, will allow you to keep what you ordinarily would be paying monthly in the way of a mortgage payment or provide a monthly stipend for you to spend at your discretion. For some people this will allow them to stay in their home by paying for the taxes and insurance due each year without having to go back to work. Others use it to provide for repairs or upgrades making their home more efficient or comfortable. Still other people use it to prevent taking from their retirement funds or SSI too early and leverage those assets. Whatever the reason it’s a useful tool but can be misused as well.
So why do people have such a negative view of this product when it can provide needed financial relief for seniors? Initially the reverse mortgage was designed for people who wanted to stay in their homes but were unable to do so because they didn’t have the income to sustain themselves. Unfortunately there were unscrupulous people selling these loans and then instructing their clients to invest in annuities that would mature in 30 years. Of course that doesn’t make sense for an 80 year old person to dump all their money into something that doesn’t pay out for 30 years. The loan was then taken over by FHA and strict stipulations were put in place to ensure the safety of the homeowner. Another thought is that those who do not like them are not, and quite possibly have never struggled financially. They simply don’t have a clue what it’s like to barely get by.
I’ll never forget a lady I spoke to who was considering a reverse mortgage in the Midwest. She owned her home outright and had $1200.00 per month income from her deceased husband’s SSI. The clincher was that she should have managed to get by in that part of the country on that income (barely) except that she also had $800.00 a month in prescriptions that she needed to keep her various physical issues at bay. The unfortunate part was that she deferred to her son to make the decision and he refused to communicate with me. I asked her if he was helping her financially and the answer was no, due to his employment…he had a low paying job. The bottom line was that she was never able to take advantage of the most available option to her and felt sorry that I could not help her. Of course there might have been other information that would support her not needing the loan but I was never given a reason other than the slam of the phone by her son.
Although most people would agree that keeping the equity in your home is the best financial strategy if you don’t have another option a reverse mortgage might be something to consider. I’ve heard of people who took their equity and spent it on a family vacation upon learning of a fatal diagnosis. Fulfilling a bucket list will have more meaning to those you love if you are able to spend time with them and not worry about money…it has a way of stealing the fun. Of course if it’s not needed then pass along that treasure but I doubt the money will have as much meaning as a shared experience with your friend or relative.
Beth Moran is a Broker Associate with REMAX Gold in the Sacramento valley. She can be reached at Beth@SacAgent.com or 916-947-3993