“The Stuff You Wont Hear Anywhere Else”
I am so sick of watching millionaire celebrities talking on television on why everyone over the age of 65 should take a Reverse Mortgage. So what is a Reverse Mortgage ? A Reverse Mortgage is actually a mortgage loan. You are borrowing on the equity on your home. And you can choose different ways of receiving the monies, for instance, you can choose a lump sum, monthly checks or even a line of credit. The analogy is you don’t have to pay it back while you still live in the hose or are still alive. Remember this is not free money, the mortgage company will charge you interest like any mortgage loan. Interest is a charge for the privilege of borrowing money generally expressed as an annual percentage rate. Remember the mortgage company doesn’t work for free they are in business to make money period.
From a Financial Planning perspective….it’s really a bad idea ! And I will tell you why.
First of all if you own your home free and clear of any and all debt the only way your home can be taken from you is if you are delinquent on your Real Estate taxes. Debt is actually designed for the wealthy to lower Estate Taxes. So the first question I usually ask is whats the approximate value of your estate ? Your estate includes any monies, cars, Real Estate, jewelry, usually anything of value you have accumulated. If that number is over 5.45 million dollars you will be subject to Estate Taxes. If you are married you can file with the IRS and raise that exemption to 10.9 million dollars. Unless you are Warren Buffet, Bill Gates or in their wealth category estate taxes are not usually a problem for the average American, we just worry about living paycheck to paycheck.
Reverse mortgages only work if you plan on never leaving your home to move somewhere else. If you sell then you will have to pay the Reverse Mortgage off like any mortgage, and under a Reverse Mortgage you still must maintain your home and pay your taxes, utilities and all the other bills that come with owning a home.
Do you remember the financial crisis which started in 2008 ? Do you remember what it did to Real Estate values? In parts of the country Real Estate values plummeted as much as 40%, and foreclosure rates were the highest in history…why ? The accumulation of debt was at historic highs, Real Estate values were over inflated, and mortgages were handed out like candy at Halloween. Owning Real Estate is not a guarantee it will appreciate in value, there are only two guarantees in life which are death and taxes, and hopefully not in that order.
The basis of Estate Planning is to leave a legacy for your aires. Whether your estate is large or small, personally I would rather see my children enjoy the fruits of my labor than the State of Arizona, for sure.
If you still are considering a Reverse Mortgage option here is one solution you might consider, if you own your home free and clear of any and all debt and cannot afford to keep or maintain your home consider selling the home. Purchase a less expensive home with smaller taxes and utilities, invest the difference in income producing instruments to boost your income and lower your cost of living, so you can enjoy your golden years stress free. Capital gains on a home sale are zero for individuals with gains up to 250,000 dollars and 500,000 for married couples.
We all want to live a life thats easy to cope with and there are many solutions since every on of us has different needs and necessities that must be met. A Reverse Mortgage is not a viable solution, in my opinion, Its another way of separating you from your wallet. It only makes sense to the mortgage company, if you get my drift. If you still are considering it consult a Financial Professional, one who has no interest in the mortgage application so you can get an unbiased opinion. If none of this works for you you can always consider getting away in a Motorhome, and see the world, I always wanted to be Easy Rider.