Reverse Mortgages Revisited

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There is probably more misinformation in existence about Reverse Mortgages than any other mortgage product in history. Much of the misinformation has been founded on fact. Reverse mortgages have, in the past, been extremely expensive mortgage products.


Lately, many of the premier players in the Reverse Mortgage market have been leaving the business. In some instances, this exit was occasioned by poor performance of the collateral in resale, so that large financial losses were absorbed. In others, the recession in land values made fewer and fewer properties attractive for Reverse Mortgages, because the former plethora of equity in the real estate no longer existed.


In any event, there is now a leaner group of mortgage lenders in the Reverse Mortgage field, and the landscape has changed, so that many Reverse Mortgages can be originated with much the same costs as conventional mortgages. Furthermore, now that there seems to be some stability in real estate values, especially in Massachusetts, this may be the time to consider Reverse Mortgages, not only for the traditional uses which the products have served but for some innovative uses not heretofore utilized.


Traditionally, Reverse Mortgages were a “mortgage of last resort”. A senior was in straitened financial condition and could not afford to purchase basic necessities, like food or, more importantly, various medications which were required for preservation of decent health. If that person had equity in his or her home, the funds generated by a Reverse Mortgage provided a lifeline for the person in question. Many times this person had equity in his or her home and nothing else. The person’s children were placed in the situation of making gifts to his or her parents or letting go of the inheritance which the parent wished to leave but could probably not afford to maintain.


Regrettably, those kinds of situations continue to exist and the Reverse Mortgage is one way to deal with them. On the other hand, there are some more positive uses of Reverse Mortgages, and you may wish to consider these, as well.


            1. Get a run-down, tired home in shape for selling. Suppose your home has plenty of equity (even no mortgage) but you do not have any spare funds to upgrade plumbing. electrical systems or a sound roof to attain a good price for your home. Using a Reverse Mortgage may be just the vehicle to take some money out of your home, address the major issues, and then market and sell your home for a fair price, not a price based on all the negatives which marketing an old house often produces.


            2. Take money out of your home and use the funds to make lifetime gifts to family members. Reverse Mortgages are not only for people who have financial problems. They can also be used by people whose financial situation is stable but who would like to make distributions of funds to family members while they are alive. None of their children want to live in the family home. Why not liquefy the real estate with a Reverse Mortgage and remove all the responsibility of selling the home after the person dies?


In the coming posts, I intend to explore other possibilities presented by Reverse Mortgages and how they can be utilized effectively. There has been a lot of “piling on” regarding this product, and I think there are times when Reverse Mortgages can be effective options for seniors.


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Conrad Allen
Re/Max Professional Associates - Webster, MA
Webster, Ma, Realtor

Hi Elliot.  #2 is a great idea for estate tax planning.  Thanks.

Feb 15, 2012 11:10 PM #1
David Krichmar - Legend Lending - Sugar Land, TX

Thank you Elliot, very helpful!

Mar 11, 2012 03:35 AM #2
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Elliott S. Topkins

Massachusetts Real Estate and Title Atty
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