Reverse Mortgages – Good or Bad for the Aged
Don

 

Goals of the Reverse Mortgage Programs




Reverse mortgages have been touted for a significant period of time as a solution to the problems of limited income available to the aging population and the ensuing need for supplemental income.  The programs, as most Government-backed programs of this type are prone to do, have morphed over time.  The basic theory is that homeowners can pull the equity out of their paid-for homes over a period of time and use the equity payments as supplemental income.  During this time of equity reduction, the program participants are allowed to stay in the home until death of one or both spouses, according to the terms of the program.  The contracted terms may not cover both.

How Reverse Mortgage Benefits Are Determined

As previously stated, the need for supplemental income has developed due to the increasing life spans of the population.  The amount of income that can be drawn out of the home is based on several factors – a major factor is the ages of the recipients, both husband and wife, and their anticipated life span if both are to be covered by the program.  Several options are available for the payouts and are subject to complex calculations which are hard to understand.  Many participants probably have a limited, and some a very limited, understanding of the program when they subscribe to it.  The real impact of this misunderstanding occurs when there is a death of one of the participants or when other family members are adversely impacted due to a misunderstood standing in the program benefits.

Reverse Mortgage Program Issues

This complexity of application of the rules has apparently been abused by some lending institutions to the detriment of the program subscribers.  This is not surprising.  After all, in the final analysis, the lending institutions are out to make money – not to absorb the risks of the program.  It has always been the opinion of this author, that the lending institution allows a broad margin of payout to the recipients vs. the profitability to the institution.  Changes to the program continue to be made to address the complexities, misunderstandings, and abuses the program has been subject to.

Reverse Mortgage Program Marketing

I believe it is a disgrace that celebrities, some aged themselves, are used to market and endorse the program – appealing to the assumed high regard in which many of the aging population hold them.  It has been shown many times that public-figure promoters of services and products have never used them, and probably have very little knowledge about what they are promoting.  One actor who appears often in support of the program displays a very flippant attitude toward it.  It is my opinion that I would sign up for this program only as a last resort – if I had no other options to meet my financial needs.  I have held this feeling about the program from the time I first heard about it and started examining some of the implications of the program in accord with my knowledge of real estate and financial principles.

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