U.S. News & World Report Presents 4 Alternatives to a Reverse Mortgage
U.S. News & World Report recently pointed out that reverse mortgages aren’t the right decision for everyone, and they offered their picks for the best alternatives to a reverse mortgage.
Now, first of all, I’m wasn’t sure that I agreed with the premise… I think reverse mortgages are for everyone… well, okay… almost everyone. Like, I suppose we could take Bill Gates, Warren Buffett and Oprah off the list along with anyone else who has enough money to start their own space program. But as to everyone else… the 99 percent, I guess we’re calling them… sure, assuming they qualify for a reverse mortgage, they can all almost certainly benefit from having one.
But, the once-venerable U.S. News & World Report was saying no. Apparently to their way of thinking there were some for whom the reverse mortgage wasn’t the “right” decision, although the article stopped short of saying why that would be the case, or for whom the reverse mortgage was allegedly wrong.
However, they were nice enough to provide what they considered to be four alternatives to the reverse mortgage, so when I saw the headline, I was anxious to find out all about them because after spending the last year researching them, I didn’t think there were any true “alternatives” to a reverse mortgage.
Okay, so here they are… alternatives to a reverse mortgage, according to Daniel Solin writing for the online edition of U.S. News & World Report, on April 28th, 2014…
1. Refinance your home.
Excuse me? Refinancing my home is an alternative to a reverse mortgage? That’s like saying that an “alternative” to carrying a $10,000 balance on a credit card, is to transfer the balance to another credit card.
I understand that the new card might be offering a slightly lower interest rate, and that’s just fine. But other than potentially saving a few bucks on your minimum monthly payment, the only other thing you’ve changed is the logo and graphic design of the piece of plastic you’re carrying in your wallet.
Let’s say your home appraises for $500,000 or more, you have a balance of $250,000, and your monthly payments are $2,500 a month. You just celebrated your 62nd birthday, so you replace your mortgage with a reverse mortgage in the same amount, $250,000.
Well, now you no longer have to pay the monthly payment of $2,500, so if you’re trying to retire early, you’ve just reduced your monthly overhead by $2,500, and you can live in your home for the rest of your life, and your spouse’s life too, if you’re married.
You still own your home, so you still pay your own property taxes and insurance, just like you did with your old mortgage… you can still leave the home to your heirs… and you can still sell it anytime you want to, just like you could with your old mortgage in place.
The only difference is that if you decided to move and rent it out, you’d have to refinance back to a traditional mortgage because reverse mortgages are only for primary residences… or if you were confined to a nursing home for over a year, you’d have to sell the home
2. Take out a home equity loan or line of credit.
Oh, Good Lord. This suggestion is even more ridiculous, as far as being an alternative to a reverse mortgage, than refinancing as described above. A home equity loan or line of credit is never an alternative to a reverse mortgage.
First of all, home equity loans or lines of credit are loans you have to repay with interest immediately and according to a strict schedule. If you miss a payment, your credit score will drop, and if you can’t repay the loan for whatever reason, you can find your home in foreclosure.
When your source of funds is a reverse mortgage, you’re not required to make any payments ever. You can make payments, of course, but you’re not required to do so. And the only way you can ever lose a home to foreclosure is by not paying your property taxes, and if you can’t pay your property taxes, then you’d lose the home eventually anyway… even if you owned it free and clear.
Secondly, in case you haven’t noticed, qualifying for an equity loan or line today is nothing like it was a few years ago. Today, getting a home equity loan or line means qualifying based on strict income and credit score requirements.
The bottom-line is that today most people won’t qualify for home equity loans or lines of credit, in fact so few qualify for these loans today, that the volume of these loans is down 90 percent compared with 2010… and 2010 wasn’t exactly a banner year for any kind of mortgage.
3. Sell your home to a third party.
Okay, so this one is just plain dumb, right? How is selling your home an alternative to a reverse mortgage? I suppose it’s something you could do to cash in on your home’s equity, but the whole point of a reverse mortgage is to be able to access a portion of your equity, without having to sell your home to do it.
Besides, wouldn’t I still have to live somewhere? So, you’re suggesting that I sell my home to get the equity out, and then go rent an apartment somewhere? Well, that’s exactly what I’m trying NOT TO DO, thank you very much.
A reverse mortgage is JUST A MORTGAGE… that offers the most flexible repayment terms imaginable. With a reverse mortgage, you still own your home… you can live in it for the rest of your life and your spouse’s life… and you can decide whether you want to make interest only payments, principal and interest payments, or NO payments whatsoever.
4. Sell your home to your children.
“Hello Son… it’s Dad. How’s the family? Listen, I know you’re busy with your life and everything, but I was just wondering… your mother and I could really use some extra cash would you mind buying our home?
I’ll finance it for you and I could let you have it for no money down… and all I need for payments is let’s say $2,000 a month. Of course, if you don’t make the payments, the home returns to me, okay?”
That’s an alternative to a reverse mortgage? I can’t believe that’s a suggestion someone could make with a straight face.
I don’t know if everyone sees this as being as troubling as I do.
So, let’s look at what happened here… an article in U.S. News & World Report, written by Daniel Solin, began with the claim that reverse mortgages aren’t for everyone, but never said why, or anything else to support that claim. Then it promised four alternatives to a reverse mortgage, before describing four things that are in no way alternatives to a reverse mortgage.
A much bigger problem is seen when Dan describes refinancing as an alternative to a reverse mortgage. He says that when you refinance your mortgage:
“… your home will remain an asset for you and your heirs, which is not the case when you take out a reverse mortgage.”
And that’s just NOT TRUE. And not only is it not true, but it’s one of the first things you learn when you’re learning about reverse mortgages. When you take out a reverse mortgage, you continue to own your home… so you’re responsible for paying your property taxes, insurance and maintenance… and you still leave your home to your heirs.
Even the Federal Trade Commission (“FTC”) makes this point very clear in several places on its Consumer Information site, stating:
“Because you retain title to your home, you are responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses.”
“Reverse mortgage loan advances are not taxable, and generally don’t affect your Social Security or Medicare benefits. You retain the title to your home, and you don’t have to make monthly repayments.”
You want to know how long it took me to find those quotes on the FTC’s consumer information site? Not even 60 seconds. So, would anyone like to explain to me how Dan Solin and U.S. News & World Report could get a basic fact about a reverse mortgage so entirely wrong, when it only takes a minute to check it out online?
Did no one find it important enough to check? Because I find that unbelievable.
The HECM reverse mortgage is a program created by Congress, regulated by the Department of Housing & Urban Development, and insured by the FHA. It’s designed for seniors, age 62 and over, to be a source of money in their retirement years, and to help seniors be able to stay in their homes. It’s a one-of-a-kind program… there’s nothing else like it anywhere. And it passed the Senate with unanimous bi-partisan support… when was the last time you saw that happen?
How can anyone be okay with misinforming a senior about something that important… something that could make such a major difference in someone’s life during their retirement years… something that might mean the difference between someone being able to stay in their home for life, and being forced to sell it, or losing it to foreclosure?
If a company was misinforming seniors about reverse mortgages with deceptive advertising in order to sell them on reverse mortgages, everyone would be disgusted and demand that it stop. So, why would anyone be any less outraged with U.S. News & World Report misleading a senior about the basic facts about the program, that could scare them away from a reverse mortgage for reasons that were untrue?
The problem is that Dan Solin is a graduate of Johns Hopkins University and the University of Pennsylvania Law School… a wealth advisor for Buckingham, and the author of the Smartest series of investing books, which have been endorsed by The New York Times and The Wall Street Journal. Kiplinger’s listed The Smartest Investment Book You’ll Ever Read on its top ten list of the best financial books ever written.
I guess you could refer to Dan as a financial news guru.
So, why doesn’t he know even basic facts about a reverse mortgage? And since he clearly doesn’t know the basics of a reverse mortgage, why would he choose to write about reverse mortgages in the first place? Doesn’t he mind misinforming seniors about something so important?
I think I may have found the explanation… on July 9th, 2014, Dan Solin published an article titled: “Don’t Pay Any Mind to Financial News Gurus,” also on U.S. News & World Report online.
Well, okay then… I’m glad Dan straightened that out.