Reverse Mortgage

A new financial vehicle available is a "reverse mortgage". This type of product goes against everything we want to teach our kids about wealth creation and being financially savvy. With all of the real-estate, passive income, stock, option and wealth building advice out there, I find it hard to accept the fact that elderly parents find it necessary to consume their kids' inheritance while they are still living.

Whatever happened to the notion of leaving a legacy for your
children and grandchildren? The website www.AARP.org defines a reverse mortgage as "a loan against your home that you do not have to pay back for as long as you live there. You pay the money back plus interest when you die, sell your home, or permanently move out of your home."

There are certain requirements that must be met before you can qualify for this loan. The www.HUD.gov website states that the borrower must be at least 62 years of age, own their home outright or have only a small mortgage that can be paid off at closing with the proceeds of the reverse loan and you must live in the home as the primary resident (you cannot rent your home to tenants and move somewhere else).

No minimum income is required to obtain the money. The borrower doesn't have to pay back the loan until they sell the house or die. However, reverse mortgages tap into your net worth by sapping the equity value out of your home. The more your borrow, the less you have in your estate to pass on to your heirs.

There are several options for being paid the cash from the loan. You can be paid the entire amount all at once, take a monthly loan advance or establish a "credit line", which is essentially taking out the money from your equity as you need it. How these loans are bad for society is that they are an easy way for people approaching
senior citizen status to avoid having to get their financial future in order. It's another reason to avoid living below your means and run up debt.

Many people aged 60 and over already own their own homes. However, we hear every day on the internet and in the newspapers that many people don't have a sufficient amount of money funded in IRA's, 401K's and other investment funds to get them through retirement. Now, with reverse mortgages being marketed on
television and radio by celebrities like James Garner and the fact that they are readily available through lending companies, it's just another reason to live for the moment and procrastinate saving for retirement.

I hope the 30 and 40-something generations are more financially savvy when it comes to saving for retirement. I would like to see the reverse mortgage receive bad press and be viewed upon the same way we now view adjustable rate mortgages.