Four Reasons To Avoid Reverse Mortgages

I wrote  last month that the market for potential reverse mortgage borrowers is limited to high-end income, highly educated people in stable neighborhoods with appreciating homes. RMs may make sense for some, but decidely not all. I aim to extend my analysis of the iffy reverse mortgage market to help the average person plan for retirement.

If you are like the many people I meet that think of their house as a hedge against unforeseen costs in their older, fragile years I recommend scaling back your hope in reverse mortgages for four reasons:

1. Home prices may not appreciate – and they may even depreciate, remember 2006- 2011 – so what you think is a sure thing in 20 years may not be worth what you forecasted.
2. If you have too much house in your 50s and 60s and you think you are going to downsize later, downsize now. There are two good reasons for downsizing now. One, when you are younger you can handle the enervation, being drained of energy or vitality and fatigue of a house move, as well as the financial hit everyone takes when you move. Selling and moving could cost thousands of dollars and over 10% of the home value. You can handle that cost in your 60s better than in your 80s. Two, people in their 80s are more likely to have bad mental and physical effects from relocating, made worse if you sell because you can’t get enough from a reverse mortgage.
3. Reverse mortgages are for those who want to age in place. Are you sure your place is a good place to age? Experts are concern that the nation’s housing supply does not match the needs of an aging population. Nearly a fifth of housing will have a disabled or infirmed person living in it and only a fraction of housing is equipped. Homebuilders are blind to the need. Aging in place is not a good plan if the housing isn’t built right for your older self. The suburbs are lousy for isolated older women.
4. Reverse mortgages are unattractive if you can’t keep up with the property taxes and maintenance costs as you age and health care costs take more of your disposable income. Some of these reverse mortgage products count on defaults, the bank will take your home if you can’t keep up with the carrying costs.

The Consumer Financial Protection Bureau (CFPB) needs more funding to conduct more research on reverse mortgages. I predict the research results would come out negative for the reverse mortgage product. The CFPB would likely find the reverse mortgage is appropriate for well- informed people who can understand the product and its risks.

In closing, consider moving to appropriate housing in your “younger” older ages – 50s and 60s — instead of planning to use a reverse mortgage in old age.