Mortgage & Loan: Full Reverse

There's been quite a bit of news lately about the expansion of reverse mortgages into a tool for extracting equity value from wealthy homeowners. I wonder if this increased media press is the last gasp of a dying cycle of the industry, struggling to keep things alive as traditional home lending and selling continues to slow.

I don't have an objection to reverse mortgages in principle, much as I don't necessarily disagree with the idea of I/O and ARM products. The problem is that these new instruments are inevitably going to be marketed to people who aren't ready for them or don't need them. And as this excellent Forbes article on the subject points out, there're a lot of pitfalls:

Longevity is an important factor here. Live 20 years with the mortgage and the fees aren't so bad. Die after a year and your heirs will be cursing. Move a short while later to a nursing home and it's you who will be cursing. George Middleton, a financial adviser in Vancouver, Wash., says that terms always compel you to pay off the reverse mortgage if you are gone for 12 months and don't have a spouse living there.

As always, investigate any new mortgage product and determine if it fits your financial situation before embracing it. Much like ARMs working best for people with irregular incomes, reverse mortgages work best for a specific clientele, and are not a "one size fits all" option in any sense of the phrase.

Posted at November 26, 2006 03:35 PM

digg this story

Trackback Pings

TrackBack URL for this entry:
http://weblog.housing.com/cgi-bin/mt/mt-tb.cgi/282

There's been quite a bit of news lately about the expansion of reverse mortgages into a tool for extracting equity value from wealthy homeowners. I wonder if this increased media press is the last gasp of a dying cycle of the industry, struggling to keep things alive as traditional home lending and selling continues to slow. I don't have an objection to reverse mortgages in principle, much as I don't necessarily disagree with the idea of I/O and ARM products. The problem is that these new instruments are inevitably going to be marketed to people who aren't ready for them or don't need them. And as this excellent Forbes article on the subject points out, there're a lot of pitfalls: Longevity is an important factor here. Live 20 years with the mortgage and the fees aren't so bad. Die after a year and your heirs will be cursing. Move a short while later to a nursing home and it's you who will be cursing. George Middleton, a financial adviser in Vancouver, Wash., says that terms always compel you to pay off the reverse mortgage if you are gone for 12 months and don't have a spouse living there. As always, investigate any new mortgage product and determine if it fits your financial situation before embracing it. Much like ARMs working best for people with irregular incomes, reverse mortgages work best for a specific clientele, and are not a "one size fits all" option in any sense of the phrase.