Dave Ramsey’s Misunderstanding of Reverse Mortgages is Hurting Seniors (Part I)

Best-selling author, and nationally syndicated radio personality, Dave Ramsey, has helped millions of individuals find financial peace with his sound budgeting advice. While this is worthy of applause, the mainstream financial planning community regularly disagrees with his guidance. The Motley Fool even describes his retirement planning advice as “dangerous.”

It saddens me that while reverse mortgage professionals across America are passionately helping older homeowners with debt consolidation and prudent financial planning, Mr. Ramsey holds them back. One of the most misinformed “planners” in the country has one of the loudest voices. So, I feel compelled to call him out. What I find however, is that I am not alone. Many others have investigated, and written their concerns about this growing problem.

“He’s huge… which makes him being wrong about something important a real problem, because he can spread incorrect information like a virus, infecting millions of people, and causing significant harm as a result.” – Martin Andelman (Mandelman Matters) Why Can’t Dave Ramsey Get his Facts Straight on Reverse Mortgages?

“He writes books; He knows about money – He must be right, I should follow his advice AND teach others to follow his advice… This is a dangerous premise and one that is somewhat unpopular for me to write about.” – Harlan Accola (Wisconsin Christian News) The Fallacies of Christian Financial Advice

Initially, I thought the problem was simply a fundamental difference in the way we view home financing. Maybe his personal problems with debt that forced him into bankruptcy caused a heightened sense of hatred toward banks and lenders. But, it appears that he simply has not done his research. Some of what he says may have been true in the 60’s and 70’s before federal regulation of the industry. But claiming these things are true today, is no different than saying “Dave Ramsey has a debt problem, and is facing bankruptcy.” It is no longer true and irresponsible to say.Microphone

I have been through “Financial Peace University” and really enjoyed it, but Dave has had over 25 years (since reverse mortgages became federally-regulated) to get his facts right. So, let’s discuss and clarify some of the concepts the he doesn’t explain correctly.

Misunderstanding #1 – “because interest accrues over the life of the loan, your debt can ultimately exceed the value of your home.” – Quote from Ramsey website


One of the first items addressed in nearly every basic training on reverse mortgages is that FHA insures against this ever happening. The FHA GUARANTEES that homeowners and their heirs will NEVER owe more than the value of their home. This is called a “non-recourse” clause, and is not only a primary consumer advantage, it is something that every reverse mortgage applicant is required to be counseled about.

Misunderstanding #2 – “You are also required to take a loan for the maximum amount you qualify for.” – Quote from Ramsey website


Not only false, the Federal Government PROHIBITS borrowers from taking all the proceeds up front unless needed to pay off large mortgage balances or other mandatory obligations that must be satisfied at closing. Yes, fixed rate products only allow a one-time distribution, but homeowners have ALWAYS had options where full distribution was not required. Even with the fixed rate, homeowners had the option of paying down loan balances at any time with funds they didn’t need.

Misunderstanding #3 – “If your loan exceeds the value of your home, you or your heirs will have to make up the difference if the home isn’t sold when the loan is due.” – Quote from Ramsey website


Once again, he has not read the federal regulations and consumer protections that are fundamental to this program. The non-recourse feature prevents any recourse to the homeowner or their heirs. In addition, the home is rarely sold when the loan is due. The heirs are given ample time to sell it and receive their inheritance if the homeowner has passed away with home equity. If no equity exists, the heirs may obtain the home at a discount (95% of appraised value). Yet, even if the home doesn’t sell, there is no recourse. The heirs do NOT have to “make up the difference.”

The Truth

The truth is: There are really good reasons NOT to get a reverse mortgage. I will write on that topic shortly, but Dave Ramsey’s blanket statements condemning the product are hurting older homeowners.

The truth is: Seniors HAVE lost their homes after getting a reverse mortgage. Yes, it is possible for ANYONE that owns a home to lose it. If you stop paying your property taxes, you may risk losing your home. That is true whether you have a reverse mortgage, forward mortgage, or no mortgage at all. Instead of scaring seniors, the reverse mortgage should actually REDUCE the fear that this will happen. Periodic draws from their home equity should actually INCREASE their ability to pay their property charges.

The truth is: reverse mortgages can be very effective at debt reduction, which is a passion that I share with Mr. Ramsey. Imagine paying off tens or hundreds of thousands of debt with reverse mortgage proceeds that allow homeowners the ability to pay off the new loan balance much faster, at interest rates in the 2%-4% range.

Subscribe to this blog to make sure you don’t miss part II next week.

I WANT A Reverse Mortgage When I Turn 62!

“Top executives and related professionals in the mortgage industry are encouraging friends and family members to obtain Reverse Mortgages. In many cases this is happening even when a homeowner has no immediate need for one. Could there be significant non-traditional uses for Reverse Mortgages that create an advantage for more than just the desperate and needy?”

– Understanding Reverse

The quote above is how I chose to begin my book. This is because the general public still considers Home Equity Conversion to be an act of desperation, not one of financial prudence. When celebrity spokespeople and a small percentage of mortgage professionals are the only ones who understand the financial planning advantages of a reverse mortgage, then we find ourselves with a knowledge gap and an industry perception problem.

The National Reverse Mortgage Lenders Association (NRMLA) and researchers within the Certified Financial Planner community have been trying to change this perception. Yet, in meeting with financial planners, I still get the same puzzled response – why would you want to get one when you are not desperate or needy? I then hand them a copy of my book.AA014748

I decided to ask other NRMLA Certified Reverse Mortgage Professionals (CRMP) how they would structure their reverse mortgages.

Professional #1

I would definitely take a HECM for the purpose of LOC (line-of-credit) growth. I would pay the closing costs upfront and carry a minimal balance so as to make this an ‘investment’ in the LOC growth for future use.”

Professional #2

“My current residence is not where I want to spend the rest of my life. When I retire, I will sell it and use a ‘HECM for purchase’ to buy my new residence. This will provide a sizable contribution toward the sales price of a home where I will spend the rest of my life. Any cash left from the sale will be reinvested for additional retirement income.”

Professional #3

“I’d take a HECM for the LOC, but I expect to have a mortgage balance at 62, so the reverse mortgage would pay that off, but I would continue making payments into the HECM LOC to ensure that money is there when I need it.”

Professional #4

“I will be signing the paperwork the day after turning 62. I will have a loan balance, but I will make regular payments. This will reduce my balance and boost my LOC as a 2nd source of retirement savings. Starting early will maximize the LOC’s compounded growth.”

They plan on using the ARM product to maximize guaranteed future cash flow that a Reverse Mortgage LOC can provide. This strategy is also enhanced when interest rates go up – the LOC grows even faster.

The strategy of obtaining a HECM early in retirement and converting liquid home equity late in retirement is generally not advertised. The Reverse Mortgage is more than a solution for the desperate. It can give retirees confidence that they will be less likely to run out of money, and it can take pressure off retirement portfolios.

Stay tuned to learn more about how to extend retirement assets beyond what traditional retirement planning can offer.

Wait, Make Payments on a Reverse Mortgage?

“There are significant advantages in making payments toward HECM loan balances that are not well known. Many homeowners are too intrigued by the fact that HECMs don’t REQUIRE a payment. Unfortunately, they miss a great opportunity to maximize some advantages of a HECM.”

– Understanding Reverse

Why would homeowners voluntarily make payments? The reverse mortgage, or Home Equity Conversion Mortgage (HECM) doesn’t require monthly principal and interest payments through the life of the loan. In fact, isn’t that a common selling point of the product?

Part of the confusion is that many older homeowners think obtaining a reverse mortgage means giving up their equity (and the home) to the bank. Why make payments, when you don’t own the home? But that’s not the way the HECM product works. The homeowner continues to own the home through the life of the loan, and reducing the loan balance will increase their equity position.

So, the decision to make periodic payments depends on the motives of the homeowner and his or her ability to make payments. According to HUD Handbook 4235.1, a borrower may “choose to make a partial prepayment because his or her financial circumstances have improved and he or she wishes to preserve more of the equity in the property.” A homeowner may also use payments to increase future monthly payouts, or to “set up or to increase a line of credit.”

That last phrase, “increase a line of credit” explains the movement toward using HECMs for financial planning purposes. Yes, the line of credit (LOC) will actually grow with each payment and be secured for later use. The available LOC will also grow naturally at the current interest rate plus 1.25%. This will give the homeowner even more accessible funds in retirement, regardless of future home value.AA013019

Keep in mind, the Fixed Rate HECM does NOT offer a Line of Credit. Prepayments will reduce the loan balance and increase homeowner equity, but that is the extent of the impact. However, when homeowners make payments toward Adjustable Rate HECM loan balances,

  1. the homeowner’s loan balance DECREASES,
  2. the homeowner’s equity position INCREASES, and
  3. the homeowner’s Line of Credit (LOC) INCREASES.

When a servicer receives a payment, FHA requires certain items to be paid back first. Known as a “prepayment waterfall”, this is important for accounting and tax purposes.  However, the LOC doesn’t care whether the payment was applied to accrued mortgage insurance, interest, or principal. It just knows the loan balance went down.

Be aware that borrowers cannot pay more than their loan balance to gain a larger LOC. In fact, paying it off completely will close the HECM. This would be unfortunate for those wanting to use it later in retirement.

The ability to make payments to reduce loan balances and secure a larger LOC for the future is a prudent financial planning strategy and should be great news for every older homeowner.

The HECM Line of Credit: Another Reason to Love Reverse Mortgages

“Quite possibly the most amazing feature of the adjustable rate HECM product is the line of credit (LOC) and its ability to grow. It is only available on the adjustable rate products, and it is unique in the world of finance. It is also the primary reason Reverse Mortgages are useful in financial planning.”

– Understanding Reverse

The Home Equity Conversion Mortgage (HECM) is offered at FIXED rates, which is fine if you want a one-time distribution of funds. The ARM products, however, offer homeowners the flexibility of monthly payouts and an open line of credit. This means one can borrow from it at any time, pay it down, and borrow from it again without restriction. In fact, many will use the LOC to manage cash flow.

There are so many great advantages to having a HECM LOC that I feel I have to list a few here:

  • The LOC is LIQUID. If you need funds they are easily accessible. Just simply request them. For this reason, it is an effective emergency fund.
  • The LOC is SECURE. The LOC is not capped, reduced, frozen or eliminated as a result of market conditions or property value declines.
  • The LOC is NOT “BORROWED” until drawn. For this reason, the available LOC does not accrue interest and mortgage insurance.
  • The LOC GROWS.

LOC Growth

There are two things that cause HECM LOCs to grow – time and payments. I won’t cover the math behind it here, but the homeowner’s Principal Limit (borrowing capacity) grows naturally at the same compounding rate of the loan balance. This is what produces the increase. For this reason, increases in interest rates can be advantageous for some homeowners as their LOC grows even faster.

Homeowners can also increase their LOC by making payments to reduce their loan balances. The lesson to be learned is that if a homeowner has cash available, it may be prudent to pay down the Reverse Mortgage balance. This will boost their LOC.

Declining property values don’t impact the LOC growth. Consequently, the LOC may even grow to exceed the home’s value. This can also occur when a homeowner holds a LOC for longer periods, or when interest rates rise dramatically causing the LOC to grow faster.


Important to understand

Be aware that if you intend to keep the LOC for financial planning, make sure not to pay down your loan balance completely. This could close your reverse mortgage and close your LOC.

In addition, only the available LOC grows. Some borrowers use all of their funds and wonder why their LOC does not increase the next month. There is simply nothing left to increase

So when you begin to contemplate how you will use a Reverse Mortgage, consider the product type. If you want the predictability of a fixed rate loan, that is certainly understandable. If however, you want to maximize the financial planning advantages of a liquid, secure, and growing line of credit, choose the ARM product.

Order the newest version of my book today to learn more about how Reverse Mortgages can allow older Americans to have more financial freedom. Understanding Reverse is the most comprehensive guide for answering your most common questions about Home Equity Conversions.

The HECM for Purchase: Another Reason to Love Reverse Mortgages

“HECM for Purchase began with the passage of the Housing and Economic Recovery Act of 2008. Prior to this legislation, if a homeowner in retirement wanted to relocate, qualifying for the new home often proved difficult. They would have to be eligible to purchase a home though traditional means, establish their residency in the home, and then refinance with a HECM if desired.”

– Understanding Reverse

The ability to use a Reverse Mortgage to purchase a home is no longer “new”, yet the public is still in the dark. Clearly, the Home Equity Conversion Mortgage (HECM) is more versatile than anyone realizes. In fact, when I speak to seniors, financial planners, and even Realtors, the concept of purchasing a home with one is completely foreign. While I can’t cover all of the details in a blog, let’s cover some basics.

The Need

Older homeowners often find themselves wanting to, or needing to, relocate to be closer to family, downsize to a more manageable home, or even upsize to a retirement dream home on the beach, golf course, or active adult community.

A call I received this week is a common one; “My grandmother wants to move to the south to be closer to the kids and grandkids.” Having lived half my life in the north, I understand that moving to the south is attractive enough on its own. Yet, when physical limitations become a reality, or when individuals desire a closer connection to family, sometimes a move is needed.


The Contribution

In a HECM for Purchase, the lender will still be able to provide the same principal limit to the borrower as is customarily available with a Reverse Mortgage. Instead of giving the funds to the borrower, however, the funds are generally applied to the sales price of the new home. Depending on the age of the youngest participant, and the effective interest rate, a lender may be able to contribute principal limits of 30% to 75% of the home value toward the purchase of that home.

When selling a home and relocating, homeowners may find that this program allows them to have cash reserves upon relocating. Many will even use the remaining funds to supplement their retirement savings.

The Details

HECMs are specifically designed to be offered only for a borrower’s “Principal Residence.” This means that HUD will require the borrower to occupy the home within 60 days. Also, be aware that many mistakes can be made when the Realtor writes the sales contract. So make sure the Realtor understands HUD’s guidelines related to new construction and seller-paid closing costs for Reverse Mortgages.

Order my book today to learn more about how the Reverse Mortgage for Purchase allows older Americans to have more freedom with their housing. Understanding Reverse is the most comprehensive guide for answering your most common questions about Home Equity Conversions.

The Non-Recourse Feature: Another Reason to Love Reverse Mortgages

The proper definition of the non-recourse feature is “FHA guarantees that the borrower will not owe more than the home is worth at the time it is sold.” This should be comforting to every homeowner and their heirs. They can be assured that if a homeowner lives a very long time, or if property values drop, FHA will pay a claim to the lender so that nobody is harmed by the loan being “upside down” or “under water”.                     

– Understanding Reverse

This is a primary consumer protection that makes HECMs so attractive. What’s not to love about this provision? It is a tremendous advantage for older homeowners that removes much of the risk associated with homeownership. Because many are skeptical about this claim, I often get asked to prove the non-recourse feature really exists. So the book, Understanding Reverse, documents the federal regulations and relevant handbooks that give us guidance.

Can a Reverse Mortgage really guarantee this?

Yes. The homeowner is not responsible for the portion of a loan balance that accrues beyond the home’s value. Another common explanation is:


Unfortunately, many understand this phrase to mean that the bank takes the home. No. The homeowner retains title to the home through the life of the loan and can sell it at any time with no prepayment penalty. The non-recourse feature is simply there to protect the homeowner and the lender from “crossover” loss, that point where the sale of the home is not sufficient to pay off the loan balance. At the time the homeowner wishes to sell, they cannot be held responsible for the portion of the loan that exceeds the home’s value.

AA014705So, who pays for this?

Before you say this is too good to be true, this is why FHA collects mortgage insurance premiums. FHA’s Mutual Mortgage Insurance Fund (MMIF) is a collection of funds created specifically for this purpose. But who pays for it? The large pool of HECM borrowers pay for it indirectly through the insurance premiums that accrue on their balances.

The non-recourse feature may also allow the heirs to obtain the home for less than market value. After the last borrower has died, the non-recourse feature allows the heirs to obtain the property for either 95% of the home’s value or the loan balance, whichever is LOWER. Again, there is no recourse to the estate for this.

Order my book today to learn more about how FHA protects consumers and ensures that the heirs are not stuck with a bill. Understanding Reverse is the most comprehensive guide for answering your most common questions about Home Equity Conversions.

Finally! A book to simplify the New Reverse Mortgage

On a recent flight, the passenger next to me asked, “What do you do?” I have begun to enjoy seeing the reactions when I reply, “I educate others on the proper use of reverse mortgages.” Predictably, she replied, “I sure hope I never need one of those.” THAT reaction is precisely why I wrote UNDERSTANDING REVERSE.

I have spent several years studying, selling, and teaching the Home Equity Conversion Mortgage (HECM), the popular federally-insured reverse mortgage product. The conclusion I, and other industry professionals, have come to is this:

When I turn 62, I WANT a HECM.

The federal government has established guidelines that, while complex, make this a financial tool every homeowner age 62 and older should consider, whether they need it or not. As evidence, consider that executives in my industry are getting HECMs for themselves and their family members. Unfortunately, our understanding of the product is different than that of the average homeowner. It appears we need a better understanding of reverse mortgages.

In response, I have written a book, titled Understanding Reverse that addresses the most common questions I get. The goal was not only to simplify the new reverse mortgage, but also to create a reference guide for answering those questions in the most compliant way. The book begins by answering the basics – what is a reverse mortgage? Every chapter that follows builds on previous chapters until the reader has a more comprehensive understanding from which to make financial decisions.

This web page, on the other hand, will include ongoing blog discussions about reverse mortgage concepts. This should also contribute to a better understanding of the product.

In addition to being an author and educator, I am the only Certified Reverse Mortgage Professional (CRMP) residing in Georgia. If you know someone curious about reverse mortgages, share this link. From here they can purchase the book and stay current with ongoing discussions through this blog.

For the other mortgage professionals that follow my writing, I would love to see your comments about how you plan to use a reverse mortgage during retirement.

As I post more blogs on this site, you will find that I am passionate about educating the public and correcting misconceptions. In fact, the skeptical passenger has since reached out to me for more information and is exploring her options. Whether she decides this is an option for her or not, that is one additional homeowner that now has a better understanding.

Dan Hultquist