Forever is a long, long time.
One of the “advantages” of a reverse mortgage is that you can stay in your house. I’ve even heard people claim that they want to stay in their house forever. Well, at least until they die. But is that a realistic ambition? And even so, will your spouse want to stay in the house after you have gone on?
These are serious questions, and they deserve serious thought.
When my mom died, Dad wanted out of the house as fast as humanly possible. There were too many memories everywhere he looked. And yes, they reminded him of the good times he and Mom had together. But they also reminded him with aching finality that she was gone.
He decided to sell the house and move out the the farm that has been in our family for more than 100 years. This move fulfilled one of his long-term goals.
When he was dying, years later, he could look out of his bedroom window and see the house where he had been born and grew up. There were memories of Mom there, too. But there were also memories of his parents, of growing up with his brother, of swimming in the creek and hunting the woods…. And most importantly, his pet cows were there.
But what if there had been a reverse mortgage on the house?
The insidious thing about reverse mortgages is they can turn your home into a prison, a prison you may not be able to escape. They accomplish this transformation through compounding. The longer you have a reverse mortgage, the more you owe on it. It is possible that you may owe more than your house is worth, even with appreciation. If that happens, you are trapped, assuming that condition doesn’t trigger one of the grounds for foreclosure. You can’t leave—not unless you just walk away from your home with nothing to show for the years of care you put into it.
To ensure this outcome, some reverse mortgage companies have been known to file a lien against the house for 150% of its value or more. They file this lien at the inception of the mortgage. So even if you want out a few months later, you may be caught like a grasshopper in a spider’s web. And notice I said more than 150% of the value of the house, not for the amount of the loan. By compounding the interest on the money they loan (not give) you, a reverse mortgage skyrockets the balance due.
Now what if your health fails and you need to move to assisted living? Go right ahead. The reverse mortgage company may even continue payments for six months. But after that, they’re probably coming for your house. And then they stop paying.
So don’t depend on the income from a reverse mortgage. That’s only another strand in the web that keeps you in your house long after you’re ready to move out.
I am extremely grateful that Mom and Dad were in sound enough financial shape that they would never have considered a reverse mortgage, even if such a thing had been available to them. I can’t encourage you strongly enough to find any other solution than a reverse mortgage. I’ll be glad to talk with you about alternatives we can offer or to help point you in the direction of other solutions.
Lee Bruns is Director of Operations for Hermit Haus Redevelopment, LLC and sits on the board of several other investment companies. He grew up in the real estate business and continues to put off retirement because of his love for old houses and a desire to help people. His role models include Jimmy Carter and Richard Branson.