I can understand why there are reverse mortgage skeptics. The product is unfamiliar to most, and confusing to others. Unfortunately, no number of charts, mathematical calculations, HUD guideline references, or even my book, will ever change the minds of many that need to experience it to believe it. Like many in my industry, I must continually defend my profession to a public that often disagrees with me, but without the facts to make an educated decision.
An interesting conversation in a hotel lobby last month highlighted this defense:
Stranger: “So what brings you to San Diego?”
I’m here discussing Home Equity Conversion Mortgages, what many call “Reverse Mortgages.”
“You do know that reverse mortgages are a scam, right?”
Well, surveys show that nearly 90% of customers say they are “satisfied” or “highly satisfied” with their decision. That is extremely high for a financial product. Scams have near-zero satisfaction ratings.
“But the bank gets your home.”
That’s the most common misconception. The homeowner holds title to the home, and when they die, the home still belongs to the estate.
“Ok, but all the equity is gone, so that’s the same as losing your home.”
Actually, research indicates that most borrowers today gain equity in their first year. From there, it is generally up to the borrower to determine if they wish to consume all their equity over time.
“Ok, but the fees are so high, and you can’t defend that”
When you say “high”, to what product are you comparing? All forms of insurance and retirement cash flow have costs. Draws from a 401k are taxable, but draws from home equity are not. The fees are similar to traditional FHA loans, but the reverse mortgage offers so much more in future security. Some find the growing line of credit to be a less expensive way to fund future in-home care. In fact, others have saved more in taxes than the costs.
“You have no idea what you are talking about.”
Actually, I’m here teaching a course on this topic, and I wrote a popular book on this topic.
“Well then, you should be in prison making license plates.”
I didn’t have the heart to tell her that most states no longer allow prisoners to make license plates. Of course, some people don’t want to be confused with the facts.
When I stopped chuckling, I typed the conversation into my phone to share with my class the following day. Of course, we all had a good laugh. However, it is sad that, like many baby boomers, she hit four of the Top 10 misconceptions in a two-minute conversation, yet she continues to reject a product that was created specifically for her generation.
For more information on the strategic uses of the reverse mortgage product, please purchase Understanding Reverse – 2017 and subscribe to this blog.