Podcast Episode 334: Are Reverse Mortgages Bad?
You’ve probably heard about reverse mortgages and might even be considering one in retirement. It’s not a question we get all the time but it’s one where somebody is seriously considering it by the time they ask us to weigh in on it. In this episode of the podcast, Jake Doser, CFP® helps us better understand this product and why someone may or may not choose to use one.
Before we can answer the question of whether they are good or bad, we first need to explain what they are. It’s also important to know that the general concept has remained the same for the past 20 or 30 years but the way it’s carried out has changed.
So reverse mortgages will typically come in two forms. The traditional option is the company who offers the reverse mortgage is providing you a lifetime paycheck based on the value of the asset. You leverage your equity to remain in the home and receive payments as long as you’re there. The second version is they give you what is kind of the equivalent to a home equity line of credit where they give you a percentage of the value to pull from as you need. The end result for either of these options is that the house goes to the mortgage company instead of staying win the family, being sold, or being part of an inheritance.
The reason things have changed over the past few decades is that people generally looked at reverse mortgages as being a bad is because the industry was considered a little more predatory back then. People weren’t encouraged to think through the decisions and often ended up losing their home as a result. That’s a dangerous place to be. But the housing crisis of 15 years ago led to a lot of policy changes and a lot of the parameters around reverse mortgages were changed for the better.
We typically see someone considering these when they begin seeing their account dwindle and realize they’re going to need additional money. This often happens due to a lack of planning or getting a late start on your plan, both of which leave you with less control over the outcome. But people also consider them because they’ve been told it’s an opportunity to take the equity out of their home and grow it through investing. That can be a very dangerous proposition because your house ends up being on the line. Not to mention returns are never guaranteed.
Hopefully this gives you a little better understanding what you’re dealing with in the reverse mortgage world. Again, a lot of these questions can be answered through solid financial planning. If you have started that process, you can take advantage of our Money Map review and take the next step toward securing your financial future.
Here’s some of what we discuss in this episode:
• What is a reverse mortgage.
• How reverse mortgages have changed over the past few decades.
• The scenarios that often lead people to shopping for a reverse mortgage.
• An example of a time where a reverse mortgage makes perfect sense.