The average person in this country can only answer 3 questions out of 10 correctly about a reverse mortgage. But, believe it or not, they aren't that complicated. After all, it's just like a traditional mortgage except YOU CHOOSE IF YOU MAKE PAYMENTS. They aren't mandatory! Really? That's all the difference? No, there's lot of little differences, but from a 50,000 foot view, yeah, that's your primary difference. You choose if you make payments or not. With that said here are 3 things people absolutely don't realize about reverse mortgages. And, #1 I already gave you the clue for!
1. You can make payments! Reverse mortgages have always been considered this loan of last resort. People run out of money, have no options and go 'ok, time to look at (shudder) the reverse mortgage.' In that case, repayment would never happen because, well, it's the only source of wealth people have left. What if you didn't use it as a loan of last resort? What if you used it instead of a traditional 30 year mortgage? Believe it or not, you could continue paying a reverse mortgage just like a traditional mortgage. The benefit, not only would all of your payments be accessible to you at any time (yes, you read that right!) but you also would eliminate the concern about not being able to make a mortgage payment down the road because, well, the payments have been voluntary not mandatory.
2. It's best to start early! Even most financial planners, accountants and attorneys get this one wrong. I personally believe it's because they don't do their due diligence. Having a degree does not a professional make. Traditional advice has been to delay a reverse mortgage until the last possible moment. Ironically, it's the worst use of a reverse mortgage and the most expensive use with the least amount of value. It's actually the exact opposite of sound advice!
3. You'll be able to do it later! Once upon a time, anyone who fogged a mirror (a living person with a house and equity) could get a reverse mortgage. Whether or not you could afford to remain in your house? Meh, don't care. Terrible with money management (shrug) go ahead! Planning on blowing it all at a casino on a cruise ship (pre & post covid), cool, put it all on 24 black! That's not the case anymore. Today you have to go through a financial assessment to prove that you're responsible and can afford to stay in the home. Guess what happens to most people who wait until the very last possible moment to get a reverse mortgage. DING DING DING, we have a winner. That's right! They can no longer get one! By waiting, they've actually disqualified themselves from being approved for the reverse mortgage. Imagine for a moment it's you. You've spent all your money, you have 1 wish - to stay in your house. You say 'hey, it's ok, I'll do a reverse mortgage.' Then you have the conversation that I, as a professional, hate the most. I'm sorry, you don't qualify, I don't see any other options for you other than selling your home. All because you waited (and maybe because you got really bad advice).
These are the most important things you need to know about the reverse mortgage that most people don't. Get educated and protect your retirement. After all, you only get one and it ought to be good!
