Why A Reverse Mortgage Should Always Be A Last Resort

People who sell reverse mortgages are likely very happy with the expected upcoming wave of Baby Boomers retiring.

Why?

Because a significant amount of them are financially unprepared for retirement that will extend,  for many of them, into their 90s.

Reverse mortgages are not new.  But they are becoming more and more viewed as a means of staying in one’s house and benefiting from the equity in the house.

I don’t want to make a binary statement and say Reverse Mortgages are bad for everyone, but they should be approached with extreme caution and only after all other means of producing income have been exhausted.

Fees can be up to 10% of a Reverse Mortgage’s loan value.

10%.

That’s even with the origination fees capped last year by HUD at $6,000.

It’s about the most expensive way to finance your retirement, but for many who have not done adequate planning leading up to their latter years, they may be faced with a Reverse Mortgage as their only means for income.

That is a really bad place to be.

While a Reverse Mortgage can work to a buyer’s favor if, for example, they live longer than expected and if their property value declines, these are risky assumptions to rely on.

It’s absolutely positively imperative that everyone, regardless of life stage and regardless of income, have a financial plan for their future that maps out how they are going to achieve living comfortably in their latter years.

Assuming you can work in your latter years is not a wise assumption.  You may be physically or mentally diminished and thus unable to work.  Your skills may be irrelevant if you haven’t been investing in your career all along.

Or the landscape for your profession may simply be gone by the time you are in your 60s and 70s.

How many industries stay constant decade after decade?

(Disclosure: I am a Fee-Only Financial Planner.  Here’s my website.)