Reverse mortgages: Bad rap or bad idea?
San Francisco Gate - August 1, 2008
Not so long ago I was at my father's house, and I heard him on the phone, arranging a visit with someone. When he hung up, I inquired about who he was making plans with.
"A very nice guy who called me," he told me. "He's coming to assess my house for a reverse mortgage."
"A reverse mortgage telemarketer?" I blurted. "You invited him into your home?"
He waved me off. "Carol, don't worry about it."
Of course, I know there is nothing inherently evil about accessing equity from your home — but there's also a notoriety about these financial tools that made the notion of my father being sweet-talked by a reverse mortgage salesman quite worrisome. "Reverse mortgages" can be the scam of choice for unscrupulous types looking to swindle seniors out of their equity. This can happen in various ways: Sometimes unscrupulous brokers convince elders to take out reverse mortgages in order to buy risky investment products. Other seniors may indeed have good reason for a reverse mortgage, but some brokers take advantage by imposing exorbitant fees.
Despite such a bad rap, reverse mortgages are more popular than ever. According to the National Reverse Mortgage Lenders Association, more than 107,000 homeowners took out reverse mortgages during the last fiscal year ending in September, compared with 76,351 the previous year and 7,781 in 2001. With more Baby Boomers — the greatest generation at not saving their money — entering their golden years every month, no doubt many of these youthful elders will choose to get a steady income from their homes and keep them too, via the miracle of reverse mortgage.
Indeed, a reverse mortgage can offer an unbeatable proposition for the right person: the cash-poor but house-rich senior. The loan allows homeowners over 62 years old to tap equity without selling the home, giving up title, or taking on new monthly payments. Instead of paying off a loan every month (as with an equity line) — the homeowner collects a check. Even if the homeowner outlives their equity, the checks keep coming and they still don't lose their home. When the homeowner moves off the property, the loan finally gets repaid, typically through selling the house.
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