Monday, April 11, 2011

Why Reverse Mortgages are Bad Ideas

Please click here and read why reverse mortgages are bad ideas in retirement. I had this debate years ago with my parents about handling my grandparents' situation. I said if they take out a reverse mortgage they can kiss selling that home and having anything to pay for nursing home care if needed. The link is a great housing blog with a cheeky attitude. If I may add....

1. A reverse mortgage creates a new debt in retirement for your estate and heirs to pay off
2. A reverse mortgage creates a debt based on fictitious wealth: "home equity"
3. A reverse mortgage opens you up to the banks and their stealth fees and penalties
4. You can access that equity in your home by selling your house and downsizing or moving to a less pricey area.

I bring the 3rd point up as my credit card company tried to tag me with a finance charge when I paid my bill in full on time. Yup, $15 and change, and I called them about it. No basis for it. The customer service person handled it well and apologized for whatever demented executive that came up with the idea of randomly charging finance fees on stable customers and seeing if they will fight it. The 4th point is that you can't have it all. You can't stay in the same home but have access to that equity without paying your pound of flesh or leaving that home. Life is a series of trade offs.

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