Reverse Mortgages are (still) dangerous
Bottom Line: My first rule of retirement is a mortgage isn’t a retirement plan. A reverse mortgage is a mortgage. Any questions? I could leave it at that but not having tackled this topic in over two years I came across a stat that got under my skin once again and leads me to want to put the issue with reverse mortgages back on your radar.
According to HUD there are currently 85,000 Floridians with reverse mortgages. Of those approximately 14,900 are at risk of default/foreclosure. That’s downright disturbing to me. It also shows that the reform that passed a few years ago, which allowed the spouses to stay in homes until their demise even if not on the reverse mortgage, didn’t address the bigger issue. The reverse mortgage itself.
With 18% of Floridians with reverse mortgages currently at risk of a foreclosure, let that be a warning to you or your parents if they’re considering obtaining one. Yes, the commercials make it seem like it’s all sunshine and lollipops.In reality, the“extra money for retirement” is nothing more than accumulating debt guaranteed by the roof over one’s head. As I’ve stated for years, there’s nothing sadder than working for your entire life, retiring having owned your home, only to lose it at a time when you’re no longer viable in the workforce.
The false premise of the reverse mortgage is this. Yes, it does “work” to allow you to tap your home equity and keep your house until you and your spouse pass on. No, it doesn’t guarantee that you’ll be able to keep your home the entire time. The problem retirees run into with reverse mortgages, is that they still have to pay for all insurance products mandated by the mortgage company at the level deemed necessary by the mortgage company along with all taxes.
In South Florida you know three things. All home insurance products are expensive, so are property taxes and we’re never potentially more than the next election cycle away from your neighbors voting to raise your property taxes again. In other words, it’s a guarantee that your costs for all of those will rise every year. One of the advantages of owning your home outright is you can choose to buy only the insurance products you want at the level you’d like to purchase coverage. The mortgage company wants high levels of coverage and all policies that potentially could come into play because they’re interested in protecting their interest in the property.
The truth is that if you feel you “need” the money from a reverse mortgage to retire, you’re probably not ready to retire.