Whatever you thought you knew about a reverse mortgage you should forget. Here’s why:
1) The common strategy of using a reverse mortgage after all other retirement income options have been exhausted is a recipe for disaster. Dangling a carrot in front of an elderly couple or a widow saying “You can live in your home and we’ll even pay you” has misled many people who were shocked to learn that they still needed to pay their property taxes and maintain the house, even though they didn’t have the resources to do so. In some cases, it resulted in the elderly couple being forced out of their home. Bottom line, the timing strategy failed the client, not the mortgage itself.
2) In 2013, the federal government enacted the Reverse Mortgage Stabilization Act which refined regulations around these products to make them better for the retirees. The government stepped in to make sure the products are being used responsibly. The provisions of “the act” were fully implemented by April of 2015. Reverse Mortgages written after that date are much different than the ones written earlier.
Reverse mortgages shouldn’t be thought of as a last resort. Rather, it should be treated as a tool and component of an overall financial plan, which we will address in future posts. Lot’s of academic research about how these products could actually enhance overall returns regardless of your financial situation, is happening as we speak.