Reverse Mortgages: Final Thoughts

Targeted marketing is worthy of suspicion

This final posting on reverse mortgages is more of an editorial. One last drawback to them is the aggressive and often misleading advertising targeting seniors. The promotional copy is often designed to tap into our most primitive emotions—fear and greed—to get you to sign on.

I received one such pitch in the mail a few weeks ago. The mortgage lender was hoping that I would pass on the “newsletter” to my elder law clients. I won’t. What follows are some of its claims and my parenthetical thoughts.

• “About 12,000 seniors got a reverse mortgage last month. Why? Simple. Seniors are concerned about the economy these days.” (Factual and forthright—so far, so good.)
• “Will they continue to receive their Social Security or corporate retirement income?” (Most experts agree that current Social Security benefits are not in jeopardy for today’s seniors and that corporate retirement income is backed by the corporations and the federal government.)
• “Will income from their stock (sic) or bonds ever return?” (Didn’t the stock market just go up 50% since March?)
• “Most importantly, how much lower will the value of their home go?” (Unless you live in Las Vegas, most experts think that the housing market has finally bottomed.)
• “[The costs] are paid by them or their heirs when the home is sold, hopefully in 15-30 years after the home has appreciated significantly so the cost will be very small in comparison.” (I thought we were worried that the housing market was spirally downward out of control.)
• “In short, the heirs get a little less while the seniors get to enjoy their lives a little more.” (The heirs could get significantly less. Nice try at a soft sell!)

Finally, the newsletter had, front and center, a man kneeling in front of his brand new Cadillac with this quote: “We aren’t eligible for an RM until next year but I figure why not? So I bought my dream car. That’s what an RM is for. Life is short!”  (No, it’s never a good idea to use up your home equity to finance a rapidly depreciating luxury item.)

Like I said, fear and greed. Reverse mortgages are very profitable for the lenders because of the high fees involved. If you have cash flow problems, I urge you to consult an independent and unbiased financial advisor who has nothing to gain from your purchase decisions. There are other alternatives. A reverse mortgage should be a last resort.

By Deborah Hoskins, JD, CFP
The Wise and the Wary Blog