U.S. News & World Report Presents 4 Alternatives to a Reverse Mortgage
U.S. News & World Report recently pointed out that reverse mortgages arenâ€™t the right decision for everyone, and they offered their picks for the best alternatives to a reverse mortgage.
Now, first of all, Iâ€™m wasnâ€™t sure that I agreed with the premiseâ€¦ I think reverse mortgages are for everyoneâ€¦ well, okayâ€¦ almost everyone.Â 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.Â But as to everyone elseâ€¦ the 99 percent, I guess weâ€™re calling themâ€¦ 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.Â Apparently to their way of thinking there were some for whom the reverse mortgage wasnâ€™t the â€śrightâ€ť 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 didnâ€™t think there were any true â€śalternativesâ€ť to a reverse mortgage.
Okay, so here they areâ€¦ alternatives to a reverse mortgage, according to Daniel Solin writing for the online edition of U.S. News & World Report, on April 28th, 2014â€¦
Â 1.Â Â Â Â Refinance your home.
Excuse me?Â Refinancing my home is an alternative to a reverse mortgage?Â Thatâ€™s like saying that an â€śalternativeâ€ť 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 thatâ€™s just fine.Â But other than potentially saving a few bucks on your minimum monthly payment, the only other thing youâ€™ve changed is the logo and graphic design of the piece of plastic youâ€™re carrying in your wallet.
Letâ€™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.Â Â 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 youâ€™re trying to retire early, youâ€™ve just reduced your monthly overhead by $2,500, and you can live in your home for the rest of your life, and your spouseâ€™s life too, if youâ€™re married.
You still own your home, so you still pay your own property taxes and insurance, just like you did with your old mortgageâ€¦ you can still leave the home to your heirsâ€¦ 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, youâ€™d have to refinance back to a traditional mortgage because reverse mortgages are only for primary residencesâ€¦ or if you were confined to a nursing home for over a year, youâ€™d have to sell the home
Â 2.Â Â Â Â Take out a home equity loan or line of credit.
Oh, Good Lord.Â This suggestion is even more ridiculous, as far as being an alternative to a reverse mortgage, than refinancing as described above.Â 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.Â If you miss a payment, your credit score will drop, and if you canâ€™t repay the loan for whatever reason, you can find your home in foreclosure.
When your source of funds is a reverse mortgage, youâ€™re not required to make any payments ever.Â You can make payments, of course, but youâ€™re not required to do so.Â And the only way you can ever lose a home to foreclosure is by not paying your property taxes, and if you canâ€™t pay your property taxes, then youâ€™d lose the home eventually anywayâ€¦ even if you owned it free and clear.
Secondly, in case you havenâ€™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 wonâ€™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 2010â€¦ and 2010 wasnâ€™t exactly a banner year for any kind of mortgage.
3.Â Â Â Â Sell your home to a third party.
Okay, so this one is just plain dumb, right?Â How is selling your home an alternative to a reverse mortgage? Â I suppose itâ€™s something you could do to cash in on your homeâ€™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, wouldnâ€™t I still have to live somewhere? Â So, youâ€™re suggesting that I sell my home to get the equity out, and then go rent an apartment somewhere?Â Well, thatâ€™s exactly what Iâ€™m trying NOT TO DO, thank you very much.
A reverse mortgage is JUST A MORTGAGEâ€¦ that offers the most flexible repayment terms imaginable.Â With a reverse mortgage, you still own your homeâ€¦ you can live in it for the rest of your life and your spouseâ€™s lifeâ€¦ and you can decide whether you want to make interest only payments, principal and interest payments, or NO payments whatsoever.
4.Â Â Â Â Sell your home to your children.
â€śHello Sonâ€¦ itâ€™s Dad.Â Howâ€™s the family?Â Listen, I know youâ€™re busy with your life and everything, but I was just wonderingâ€¦ your mother and I could really use some extra cash would you mind buying our home?
Iâ€™ll finance it for you and I could let you have it for no money downâ€¦ and all I need for payments is letâ€™s say $2,000 a month. Â Of course, if you donâ€™t make the payments, the home returns to me, okay?â€ť
Thatâ€™s an alternative to a reverse mortgage? Â I canâ€™t believe thatâ€™s a suggestion someone could make with a straight face.
I donâ€™t know if everyone sees this as being as troubling as I do.
So, letâ€™s look at what happened hereâ€¦ an article in U.S. News & World Report, written by Daniel Solin, began with the claim that reverse mortgages arenâ€™t for everyone, but never said why, or anything else to support that claim.Â 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.Â He says that when you refinance your mortgage:
â€śâ€¦ your home will remain an asset for you and your heirs, which is not the case when you take out a reverse mortgage.â€ť
And thatâ€™s just NOT TRUE.Â And not only is it not true, but itâ€™s one of the first things you learn when youâ€™re learning about reverse mortgages.Â When you take out a reverse mortgage, you continue to own your homeâ€¦ so youâ€™re responsible for paying your property taxes, insurance and maintenanceâ€¦ and you still leave your home to your heirs.
Even the Federal Trade Commission (â€śFTCâ€ť) makes this point very clear in several places on its Consumer Information site, stating:
â€śBecause you retain title to your home, you are responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses.â€ť
â€śReverse mortgage loan advances are not taxable, and generally donâ€™t affect your Social Security or Medicare benefits. You retain the title to your home, and you donâ€™t have to make monthly repayments.â€ť
You want to know how long it took me to find those quotes on the FTC’s consumer information site? Â Not even 60 seconds. Â 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? Â Because I find that unbelievable.
The HECM reverse mortgage is a program created by Congress, regulated Â by the Department of Housing & Urban Development, and insured by the FHA. Â 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. Â It’s a one-of-a-kind program… there’s nothing else like it anywhere. Â 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. Â So, why would anyone be any less outraged with U.S. News & World Report Â 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 Schoolâ€¦ a wealth advisor for Buckingham, and the author of theÂ SmartestÂ series of investing books, which have been endorsed byÂ The New York Times and The Wall Street Journal. Â Kiplingerâ€™sÂ listedÂ The Smartest Investment Book Youâ€™ll Ever ReadÂ 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 doesnâ€™t he know even basic facts about a reverse mortgage?Â And since he clearly doesnâ€™t know the basics of a reverse mortgage, why would he choose to write about reverse mortgages in the first place? Â Doesn’t he mind misinforming seniors about something so important?
I think I may have found the explanationâ€¦ on July 9th, 2014, Dan Solin published an article titled: â€śDonâ€™t Pay Any Mind to Financial News Gurus,â€ť also on U.S. News & World Report online.
Well, okay thenâ€¦Â Iâ€™m glad Dan straightened that out.