Views on Reverse Mortgages from Around the World
It’s utterly amazing how this country has managed to adopt such a warped view of reverse mortgages. Somehow, we’ve managed to take a government insured mortgage that doesn’t require monthly payments and turn it into a bad thing.
It would be funny, were it not so embarrassing.
You have to wonder how a source of funds, available at a relatively low, competitive interest rate that does not need to be repaid by making monthly payments could be a bad thing?
I was talking with a woman in her mid-60s a few days ago. She had considered a reverse mortgage recently but decided against it. I asked her if she had understood that by switching to a reverse mortgage, she would no longer have to make her monthly mortgage payments, which were roughly $2400. She said yes… she understood that.
So, I asked: “But you said no to that idea, right?”
“That’s right,” she replied.
“So, I have to ask… are you crazy? Or, is there something I’m missing here? I’m only asking because I have to tell you that if someone told me that if I switched to something else I wouldn’t have to make my monthly mortgage payments anymore, I’d think I’d won the lottery. But you said no to that. So, are you crazy or… do you just like making mortgage payments every month?”
She laughed and said she wasn’t really sure, but that it was her lawyer that didn’t like the idea.
“Oh, okay… so did he say why he didn’t like the idea?”
“Um… not really,” she said. I don’t think he did.”
“Hmmm…” I reflected. “Well, you might want to ask him about that sometime because he could be wrong, you know. In my experience, it wouldn’t be the first time a lawyer was wrong about something, if you know what I mean.”
“That’s true,” she said.
And that’s only one such conversation among many that have left me scratching my head.
Why wouldn’t everyone want a mortgage that allowed you to not make monthly payments if you didn’t want to make monthly payments? Or a mortgage that allowed you to make interest only payments if that’s what you wanted to do? The whole discussion always seems so strange to me.
I mean, which type of mortgage would you want… the kind that forces you to make monthly payments or else you end up in foreclosure, or the kind that allows you to not make payments whenever you don’t want to make payments?
Is that really a choice? Does someone really need to think about that? Why? Assuming the rates and costs were competitive, of course… and in this case they are, by the way… what would there be to think about?
So, this past week I was talking with a “Snowbird,” a Canadian citizen who lives in Arizona nine months a year, and then returns to Canada for the summers to avoid the sweltering heat of the Arizona desert in June, July and August. After Labor Day, he packs and heads south for the winter, hence the moniker, “Snowbird.”
He was very familiar with reverse mortgages… apparently they have them in Canada too, but for whatever reason, in Canada there is no stigma attached to them as there often is here in the lower 48 states.
In fact, in Canada, they even warn Canadians that when searching for information about reverse mortgages, to be sure to include the words, “Canada or Canadian” when using the Internet to search for “reverse mortgages,” to make sure their citizens are not misinformed by the misinformation that’s so prevalent here in the U.S. on the topic. How embarrassing is that?
Check out what Canadian citizens are told about doing research on reverse mortgages…
Canadian Home Income Plan (CHIP) – Reverse Mortgages in Canada
Understanding a CHIP Home Equity Reverse Mortgage for Seniors
A Reverse Mortgage in Canada is just like most other mortgages, with a couple of important exceptions: it is only available to seniors aged 55 years or older and there are no monthly repayments required to pay back the mortgage. Because there are no repayments, there are also no credit-checks or income/debt requirements. The borrower’s ability to make payments, typically an important concern with most banks, is simply not at issue here.
Never make a monthly mortgage payment
There is a lot of misinformation out there on the Internet…. largely because people do an Internet search for “reverse mortgage” or “mortgages for seniors” but fail to add the word CANADA or CANADIAN. Our financial system here in Canada, and banking regulations, are very different than down south!
When doing your research, be sure you are reading about the Canadian experience.
You remain on title to the home, and you can never owe more than the value of the home. As long as you are still living there, you can never be forced to move or sell. These protections are guaranteed in writing, and the lender is a Schedule 1 bank that is regulated by the federal government. All mortgages for seniors are protected by Canada’s laws.
The American Media should be both embarrassed and ashamed…
That should be embarrassing for the media in this country, right? Known internationally for spreading misinformation about something this important for older Americans? Nice job, New York Times, Forbes, CNBC, and all the rest… very nicely done there. Credible much? NOT.
(You can read my take on that subject here: Major Media Misinforms, Scares Seniors on Reverse Mortgages.)
A World of Reverse Mortgages…
So, after that experience, and remembering that there are other countries, I decided to look elsewhere in the world to see if they had reverse mortgages and how they talked about them to their citizens. Spoiler alert: Again, it was nothing like here… and I found it fascinating.
In the United Kingdom (U.K.) they have a different kinds of reverse mortgages, except they call them “Lifetime Mortgages,” and they are apparently (and understandably), quite popular among the Brits. In fact, Gv7 is “one of the UK’s finance resources to educate & advise people on all financial related issues & activities.“
Here’s an example of what they have to say about reverse mortgages in England…
According to GV7.co.uk… “Reverse mortgages have become very popular in the UK today. These mortgages are of a special type that are designed to help a homeowner to convert their home equity into ready cash, boosting up the financial security they have, by enabling them to meet any unexpected medical expenses, or making home improvements, etc.
These mortgages have enabled seniors to take their home equity and live a life free of the stress of making mortgage payments during their retirement years.”
Gee, that sure does sound awful, doesn’t it? Something that “boosts up financial security,” and is helping seniors to, “live lives free of stress of making mortgage payments during retirement years.”
But, for whatever reason, in this country you often run across people that have been told that reverse mortgages have some sort of negative aspect to them? Well, maybe someone should get on the phone and call “Number 10 Downing Street,” to let London know that they’re making a huge mistake over there.
We could send them one of the countless articles from our mainstream press… you know, the ones that have most of their facts wrong about reverse mortgages. I’m sure that would impress everyone across the pond very much indeed.
The whole thing makes me embarrassed to be an American. Does anyone know how I become a Canadian citizen? I’m too embarrassed to show my U.S. Passport outside the country anymore.
Here’s another article from the U.K. on the topic of reverse mortgages…
Reverse Mortgages Plans Throughout the UK, by Rogan Billinger
It’s not surprising that there’s been а lot buzz recently about reѵеrѕе mortgages. When something does this much best for a lot of people, Ñ–t’Ñ• certain to get a lot of people excited.
Create a loan that lets homeowners age 62 as well аs over have a portion of the equity out of their primary resÑ–denÑe and use Ñ–t fог practically any purpose while making no mortgage payments. It sounds too good to bе true, however it iÑ• real. ThÑ–s loan product has bеen growing by a lot year aftеr year.
Τheгe is more to those loans than you may realize. Sure, it is a great way to supplement income, purchase medіcal eхрenѕеѕ, pay real estate tахeѕ, in-home health care, as well аѕ other necessities of lіfе. However, it can bе so many other things too.
Ηeге аrе sоme secrets about reverse mortgages that you maу not learn about.
Fог instance, the proceeds Ñаn be uѕеd аѕ a gift tо fund college for a kid or grandchild. The proceeds may also be usеd in an effort to help a kid or grandchild with the advance payment on the first home. With traditional lending standards more stringent, this really is becoming mоге popular every day.
Do you know of somebody (possibly even you) that wants to obtain a vacation home? Well, when they are 62 yeaгs or older, the opposite mortgage Ñan be just the ticket. In the event the amount of money accessible to purchase that property Ñ–s nоt quite enough, maybe a reverse mortgage will make the difference. There aren’t anу income or credit requirements and the proceeds from а reverse mortgage could bridge the gap.
Αгe you aware that a revегѕe mortgage could be used to buy a house? Yes it’s true! If you’re 62 and over а reverse for purchase can help you have the home you’ve always dreamt of that fÑ–tÑ• your requirements and your wants.
Is the current home becoming a burden? Think abоut thе constant maintenance? Іs it tоо time-consuming? Are you contemplating selling that home although not sure about your alternatives? Whаt аbout considering investing in a new residence by using а reverse mortgage and sее if it’Ñ• the ideal choice to suit your needs?
Αѕ you Ñаn see, there аre plenty of good things happening with reverse mortgages. It is no surprise that it’s the fastest growing segment within the mortgage market. For smart seniors this Ñ–s an excellent method to preserve lifestyle without having to sacrifice assets. (Emphasis mine.)
Wow… so I guess they must be better over there…
Oh, wait a second… they’re pretty much the same over there as they are here.
Now, I’m not one to beat a dead horse, unless of course it needs to be beaten and in this case I really think it does. So, what do the Aussies from down-under think about their reverse mortgages?
Reverse Mortgages in Australia…
According to Deloitte’s latest Reverse Mortgage Report…
“Given that for many retirees the equity in their home continues to represent two thirds or more of their entire wealth, well in excess of their superannuation balance, a reverse mortgage is a very useful consideration for asset-rich retirees who want either extra cash flow or to fund an aged care accommodation bond,” says report author James Hickey, Deloitte Partner Financial Services.
He highlights that banks, insurers and superannuation funds are best placed to better embrace, understand and educate Australians on the option of equity release products.
“These are the groups seeking to help their customers aged 65 and over to navigate their retirement with the dual challenges of longevity and income sustainability. Bringing what is often their most substantial asset ““ their home ““ into such discussions must be in the best interests of everyone.” (Emphasis mine.)
“The aged care funding changes that came into effect 1 July 2014 should further provide evidence of the beneficial role of equity release products to fund aged care accommodation bonds. This is an opportunity only a few groups have identified.”
Okay, so that was written by a partner in Deloitte Consulting.
Is he wrong too, and is our dysfunctional rumor mill media right? Now why would I find that hard to believe? Maybe because in this country Bloomberg has 28 year-olds writing reverse mortgage articles… and that’s Bloomberg. Imagine who’s writing for the St. Petersburg Times, Tampa Bay Gazette, and other bastions of investigative journalism.
WRONG in the U.S.A.
Maybe it’s a combination of things that have created negative impressions about reverse mortgages here in the U.S. Some of it could be left over from past iterations of the product, before the government took it over and HUD started regulating it… I really don’t know as that was some years ago now.
Some of it could be tied to our mortgage meltdown and housing crisis, that slashed home values by up to half in some areas. And perhaps some is simply because Mortgage + Seniors makes for great headlines. The only thing better would be Mortgage + Children.
It could also be our mainstream media’s proclivity to echo whatever was written last time by whomever else has written about it. It’s sad, but the vast majority of today’s reporters are paid to write… not investigate.
I remember hearing from an AP reporter a few years ago. He had read articles on Mandelman Matters about homeowners in the loan modification process and he was asking me all sorts of questions about the situation. After about 15 minutes, I had to run so I suggested that he interview some actual homeowners as I had done to write my article, but he explained…
“Martin, I live on the Upper West Side… I don’t even know any homeowners.”
It sounded ridiculous so I replied, “Oh, I see… the Upper West Side… okay, so here’s what you do… head up to 176th Street and look for signs for the George Washington Bridge. Cross it and you’ll be in New Jersey… they have homeowners there.”
He answered, “I understand, but they don’t pay me to go to New Jersey. I just have to sit at my desk and write something.”
“Oh, I see,” I said. “Okay, well then just make something up, I’m sure it will be fine.”
And that was the end of that conversation. The point is that under those sort of ‘research-lite’ circumstances, reporters are forced to write their articles based on whatever they can find online, and if whatever came before them had some facts wrong… then their new article will likely repeat those same bad facts… and so on… and so on.
After some period of time, what you have is what’s found online today related to reverse mortgages, which is a plethora of articles echoing each other, published by major media outlets, with increasingly sensational headlines that all misstate key points about reverse mortgages.
Then the misinformation spreads, like the game of telephone, until it’s just ridiculous. Last week someone said…
“Martin, I heard that reverse mortgages are very expensive.”
So, I said, “Oh yeah, how much are they, as you heard it?”
“I heard they cost $112,000,” she said quite seriously.
I couldn’t help but laugh out loud. “Does that even sound possible to you? Congress created a program designed to help people over 62 financially… as long as they have $112,000 to spend?”
“Well, that’s what I heard from my neighbor,” she said.
The reverse mortgage industry is also to blame for the reverse mortgage being so unfairly maligned. Many people come to know about reverse mortgages from watching the television commercials, which for years make the product sound like it’s designed for those who have no options… like it’s either this or they’re eating cat food for life.
That may be how companies advertise reverse mortgages, but that’s only because it’s the approach that makes the phones ring. It’s certainly not how or for whom the program was designed… and it’s sure not how people in other countries view reverse mortgages.
Over the last 18 months I’ve researched reverse mortgages from head to toe, as it were, and there’s just nothing all that complicated about them… there are no trap doors, no secret handshakes, nothing that you can’t understand or verify. In fact, in my view, they are safer and better than any traditional loan ever thought about being because you can’t lose the house to foreclosure even if you don’t make the payments.
They’re not expensive and for millions of retirees, they represent the ONLY way to access the equity in your home, because when your income drops or your expenses rise during retirement, you won’t be able to get a HELOC or a second… your only other options will be a hard money loan or sell the house.
You can use the money for whatever you want, and you don’t need to worry about meeting strict income or credit score requirements… if you have sufficient equity… you’re over 62… and it’s your primary residence… you qualify.
And half of that would be enough to qualify them as both safer and better in my book.
Still, in this country we’ve sure made a mess of things related to reverse mortgages and it’s tragic because there are undoubtedly millions of Americans whose lives could be significantly better if they knew the accurate FACTS about them as applied to what they’re trying to accomplish during their retirement years.
So, do you want to know what I heard about reverse mortgages?
Well, I heard they turn you green… that if you have one, your skin turns green. And it’s not easy being green.
Don’t look at me like that… that’s what I heard.
I’ll keep working on it and let you know what else I find out.
Mandelman out.
~~~
Links to other Mandelman Matters articles on reverse mortgages you may enjoy reading:
MOTLEY FOOLED BY REVERSE MORTGAGES – NEW YORK TIMES NO BETTER
U.S. News & World Report Presents 4 Alternatives to a Reverse Mortgage
Why Can’t Dave Ramsey Get His Facts Straight on Reverses?
Who Doesn’t Need a Back-Up Plan for a Secure Retirement?