No Rational Reason to Avoid Reverse Mortgages

The reverse mortgage was a created to help retirees stay in their home without the need to keep up with monthly mortgage payments at a time when cash flow might not be optimal. In addition, borrowers who also owned their homes free and clear could tap into the home equity they accumulated throughout their working years and leverage it during retirement.

Something happened along the way that increasingly painted reverse mortgages in a negative light and, suddenly, a financial product that was created to help seniors became the “most misunderstood mortgage” there is. Even more confounding is the fact that many financial experts and academics find “no rational reason” why many older homeowners remain hesitant to tap into their home equity.

A recent article in Reverse Mortgage Daily interviewed Steven Sass, a research economist at Boston College’s Center for Retirement Research, about the familiar behavioral roadblocks many retirees have about the reverse mortgage and the financial industry in general.

At the top of the list is a fear of getting into debt late in life and the satisfaction that comes with owning a home free and clear. These are two things that are not inherently bad but can cause problems for future retirees.

For example, the article mentions the fact that Social Security may be non-existent in the future and newer generations are saving less and less so where do future seniors obtain cash flow for their retirement needs: the equity in their home. Equity is a funny thing, many people don’t think about it until they need it but it’s an important source of cash flow. More importantly, it’s an option to supplement income and diversify assets in an ever-changing environment.

In a perfect world, a homeowner takes out a reverse mortgage line of credit at 62 and lets it grow, untouched, as a “rainy day” fund for the future but, like equity, many homeowners don’t think about the reverse mortgage until it is necessary and, by then, it may be too late.

“If you have a sufficient income to cover your expenses, is there any great need to go out and secure this line of credit or get the money?” Sass asked rhetorically. “So I think people might need some impetus to use a reverse mortgage.”