Here is a great example from today's Dallas Morning News, where Scott Burns, the financial "expert" takes a question about a reverse mortgage and really blows it. Here is the text of the question to Scott from P.H., His Answer to them and and my e-mail to Scott.
You can boost cash flow without turning to a reverse mortgage
12:00 AM CST on Thursday, December 3, 2009
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
(this was the answer)
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.
(This is what i e-mailed scott today. in response to his answer)
Scott,
I think you got the Reverse Mortgage question a bit wrong. First, having no money, but having lots of equity is being "house rich" not "house poor." Also the advice for seniors to just sell is very often not what they want to do. Especially now, when values are probably at or near their low point, most seniors don't feel comfortable selling their home. Every survey of senior homeowners show that well over 80% do not want to move. Also, your statement that the questioner could not qualify for enough of a Reverse to pay off his loan is absolutely wrong. The questioner can qualify for about $106,000 today and taking a Reverse would save them $7,200 a year in increased cash flow due to no longer having to make monthly mortgage payments.
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