I have what I think is a “very stupid” question…..
Why do so many people think they should wait until all their cash reserves are exhausted before doing a reverse mortgage?
I can’t tell you how many times I’ve heard reverse mortgage borrowers say “I wish I would’ve done this loan sooner”.
For whatever reason, they’re told by their “financial professional” to hold off as long as possible before securing a reverse mortgage. This could be some of the worst advice ever, and it could destroy an investment portfolio.
Hear me out on this.
Let me start off by saying I believe a sound financial plan involves being diversified. There are obviously lots of very smart people out there with lots of longgggg designations behind their name that get paid a lot of money to protect YOUR money. Hopefully you have one (or more) of them in your life. I’m only here to talk about reverse mortgages. I’m not a licensed financial advisor (but I play one on television). Just kidding…..I’m NOT a licensed financial advisor.
With that being said, I do feel like I have assisted enough reverse mortgage clients for the last 12 years to understand what a sound financial plan looks like.
One of the biggest fears I hear from my clients is the possibility of running out of money. I think this is a very “real” concern for a person who has no idea how long they’ll live for and what type of surprises are thrown their way.
Medical expenses, home repairs, illnesses, helping children and/or grandchildren….the list goes on and on.
ENTER REVERSE MORTGAGE
For years, the reverse mortgage was considered a loan of last resort. This thought is just straight up silly to me.
Why should a person liquidate all their cash reserves BEFORE doing a reverse mortgage?
#1 – Chances are, the money that’s being accessed will be assessed with taxes and/or early withdrawal fee’s. Not good.
#2 – Once the cash is depleted, there’s nothing left to grow as the markets improve.
#3 – Reverse mortgage proceeds are not taxable.
In addition, there’s nothing worse than a borrower that gets backed in to a corner and has to “hurry” to get access to funds. This might not give them enough time to think the reverse mortgage through extensively.
And this is just one example of poor advice. Another one we hear quite often is that a borrower should sell their home, take all the proceeds, and find some where to rent. Not always what’s best for the homeowner.
Now don’t get me wrong, some borrowers CAN NOT afford to stay in their current home. These people might have no other option but to sell and downsize to something more affordable. I’m not talking about these people.
What I’m referring to are people who just need a little help. The reverse mortgage might be EXACTLY what they need to make their life a thousand times easier.
Is their current home bigger than what they need? Maybe.
Is there more land than what they need? Probably.
But, the one thing that most often gets overlooked is the fact they WANT to stay in their home where they are comfortable. They WANT to be on their own. They WANT to spend the rest of their life in a place they love.
The reverse mortgage might be the best loan for them.
The take away here…..sometimes what might appear to be the smartest thing to do on paper, is not what’s the smartest thing to do for a persons mental health.
Moving out of a home after spending decades there and into a rental can wreak havoc on a persons overall health. I witness this first hand on a daily basis.
In closing, I have a simple request…..Don’t give advice about reverse mortgages if you don’t understand them. Consult with an expert to get the facts, then provide your advice.