June 5, 2013
Reverse Mortgages Backfire on Seniors, CNBC Reports
Diana Olick, CNBC’s Real Estate Reporter for its Realty Check blog, argues that the “housing crash” and the “fiscal state of today’s seniors” are causing reverse mortgage loans to backfire. There has been a hard sell recently for reverse mortgages as America’s population ages; even former “Fonz” actor Henry Winkler “is giving the hard sell in relentless television ads,” Olick writes.
Reverse mortgages are typically used by seniors to take out their home equity to spend during retirement. “Unlike a regular mortgage,” Olick explains, “they require no monthly payments, and the borrower can take out a lump sum or receive regular payments.”
This is an attractive options for seniors, who often find themselves overwhelmed with expenses in retirement. They can use the wealth that is “sitting idly” in their home to pay for needs or even to embark on more comprehensive financial planning in order to be prepared for their later years. “The wealth in the home is, in most cases, wealth that is sitting idly when people have a hard time making ends meet on a day-to-date basis,” said Peter Bell of the National Reverse Mortgage Association.
Despite these apparent benefits, experts argue that reverse mortgages are being used “for all the wrong reasons.” By utilizing a reverse mortgage, senior end up having less equity and savings, and more debt. This appears to defeat the purpose of taking out a reverse mortgage in the first place.
“This was originally contemplated as something you could draw money from over a long period of time, as a way of supplementing your income or providing income when you had not others (sic). Now a lot of people are looking to reverse mortgages as a quick fix,” David Certner of AARP said.
The proof is in the pudding: approximately 9.5 percent of the 775,000 outstanding reverse mortgages are delinquent. While there are certainly situations in which seniors can greatly benefit from taking a reverse mortgage, as this blog has previously reported, one should make sure that they are doing it for long term financial benefits, rather than as a quick fix.
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