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Reverse Mortgages: Some Observations & Thoughts
I’ve been doing Reverse Mortgages for the past couple of years now, though not in huge quantities, and I’ve learned some interesting things. My first revelation was that the generation for whom these were intended–the pre baby boom, post depression era, 62 and older crowd–find reverse mortgages about as appealing as a bankruptcy. It takes an extreme hardship to get them to even consider the idea.
After thinking about it, I get that. In order to gain the high ground of owning a home with no debt, those people worked all their lives and sacrificed in ways my generation can’t even imagine in our self-indulgent, buy-it-now-pay-for-it-later world. To these diligent folks, taking out a mortgage once they finally own their home is tantamount to slamming the car into reverse and flooring the gas. Nothing good can come of it.
It’s Usually the Kids
I mean that it’s usually the children who introduce the idea of a Reverse Mortgage. It’s pretty common to find an elderly person living on beans and pursuing their life long practice of self-sacrifice just to preserve the equity in their home for…..yes, the children. What kind of sense does that make?
Often, the children are first to have the epiphany. Those who are successful in their own right often prefer to see the parents lighten up and live a little. For others, it can be a matter of cash flow and trade-offs. “Why should we stop our 401(k) contributions to help mom or dad now just so they can leave us more later?” Good question.
Options and Flexibility
For many, the issue is liquidity. I have a client whose entire family nest egg–three generations worth– is tied up in her home. But she is getting on in years and dealing with the usual health issues. If she experiences a sudden decline in health or a medical emergency, tapping the home equity may not be possible. The only choice then will be to sell in an unfavorable market.
A reverse mortgage became the basis for that family’s financial plan where virtually no plan had existed before. A combination of immediate cash plus a line of credit–yes you can combine these–created the options and flexibility they will need when the day finally arrives.
Do you know someone who needs a reverse mortgage and doesn’t know it? Give me a call. I can help.