Reverse Mortgage Loan Blog

Q: We are 75 and 69. Our financial situation is good. We live in a “senior citizen environment” and have a $100,000 mortgage on a $200,000 home. Our payment is less than $600 a month. We know people are jumping on the reverse mortgage concept. Some do this for the right reasons, and some for the simple cash flow advantages.

But down the road, homeowners walk away, and no value is left in their home for the survivors or those who expect some inheritance.

With the economy as it is, home values may never be what they have been in the past. Does it make sense to have a reverse mortgage now, or is there something in that process we are not seeing?

P.H., Sun City, Texas

A: Reverse mortgages are better deals than they once were. Expenses have come down. That’s the good news. But the real question is: Who would really benefit from a reverse mortgage?

Most people interested in getting reverse mortgages have little or nothing in financial assets. They need the money to continue living in their houses. This means they are “house poor” and are probably spending a large portion of their incomes on the cost of operating their homes. It also means they’re shortchanging everything else in their lives to stay in their homes.

I think most of the people considering a reverse mortgage would do better if they sold their homes and bought or rented a more affordable place. They may have a sentimental attachment to their homes (and an equally great fear of change), but if money gets tight, the most common result is a poorly maintained home. Worse, the homeowners are trapped because they don’t have money to do anything but stay at home.

It’s nice to stay in a home you’ve lived in for many years, but a better exercise would be to make a list of all the opportunities you’re missing because you’re house poor.

For you, a reverse mortgage would not be enough to pay off your existing mortgage, but it would provide a monthly payment almost large enough to cover your mortgage payment.

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