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Are Reverse Mortgages America's Most Hated Loan?

By Kent Kopen, CRMP, CLA, MBA posted 03-28-2019 11:57

  

Are Reverse Mortgages America's Most Hated Loan?


A recent Bloomberg article is off track: the biggest problem with reverse mortgages isn't the financial instrument or providers, it's unrealistic expectations about them.


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When I worked at Merrill Lynch, a mentor, Steve Bernardy, told me, "Our job as financial advisors is not to make our clients rich, our job is to keep them rich. It's their job to accumulate the wealth." There's a parallel with reverse mortgages. Reverse mortgages are not financial alchemy; they help with cash flow but not net worth.

 If you don't have enough wealth before you get a reverse mortgage, you won't have enough because you got one.

That's not meant to sound harsh, it's just a truism no one wants to talk about. Imagine, on a realistic budget (one that accommodates minor surprises but not major catastrophes) you're going to need $500,000, on top of your retirement income, to pay your bills through an average life expectancy. If your total wealth is $400,000, a reverse mortgage is not going to fill that $100,000 gap.

This, I think, is the back story why blame gets cast on... Read more.


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11-10-2022 17:14

You make some solid points @Kevin Thompson, CFP®, RICP®.  Recognizing the importance of behavioral finance in terms of actual client returns, would you agree that few things are more important to seniors than aging in place, in their own home, regardless of the net present value of alternatives?​
They tend ot be the most hated becuase they are not thoruoghly understood.  Most people hat eto think of using equity in a home as a good option, but what I do not readily understand is what else wil you do with the home equity.  You put al this money into a home just to let it sit there and not explore the many options in opening up the homes liquidity to increse additional cash flow.  If life insurance is an opiton, you could use the death benefit to repay the loan in the future at a certain death effectively opening up the cash flow from the death benefit.  Many see the cost of the reverse mortgage as a negative, which i defintiely understand, but it really does not matter  when we are discussing cash flow.  Everything has a cost.