Let’s Talk Retirement: 5 Myths about Reverse Mortgages Busted

So, it’s happening. We’re talking about retirement. You’ve worked your tail off, and now it’s time to kick back, relax, and live off squirrelled away pennies in your golden years. Except, the pennies look more like itty-bitty crumbs. Not what you’d pictured, right? Well, surprise, surprise! Buffering up your retirement fund is not Mission Impossible, thanks to the rising home values today.

If your eyebrows are hitting the ceiling, I don’t blame you. How can our home contribute to our retirement fund? Well, say hello to reverse mortgages! Not ringing a bell? You’re not alone. Even though financial advisors sing its praises, the concept behind reverse mortgages remains a mystery to many.

“They aren’t the Holy Grail or a quick-fix,” Zachary Barton, founder of Barton Financial Group, clarifies. “But if you play your cards right, they can really boost your retirement plan.” In fact, a 2024 Opinium survey found that 62% of older homeowners see reverse mortgages as a silver lining to their retirement worries. Ready to bust some myths and make sense of these financial lifeboats? Here we go!

MYTH #1: REVERSE MORTGAGES – A HIGHWAY TO HELLSVILLE

Once upon a time, the late-night commercials painted a rather grim picture of reverse mortgages. Have things changed since the ’90s, though? Michael Jackson’s music has definitely aged better, but don’t write off reverse mortgages just yet.

Strict regulations have added a protective shield around reverse mortgages – especially the Home Equity Conversion Mortgage (HECM) type. Today, these can line your pockets without turning your life topsy-turvy. But, like a bad perfume, the past lingers. “People are still a bit wary. It’s not their fault really. Misinformation can sour any deal,” says Barton. His remedy? Taking time to explain it, letting you digest the numbers, and helping you see how it fits into your retirement jigsaw puzzle. How’s that for after-service?

MYTH #2: REVERSE MORTGAGES – THE SAILING BOAT FOR THE DROWNING

Nope, reverse mortgages aren’t just for desperate times. Far from it. Think of these as a loan lighthouse, guiding you through financial rough seas. It’s more than a last resort; it’s a clever retirement income diversification tool. Sound fancy? Well, it is, kind of.

Barton clarifies, “These loans can be a smart way to cover insurance, taxes, etc. during your retirement days.” And there’s more! Savvy retirees can even set up a credit line through reverse mortgages – like a safety net when investment returns plummet. Essentially, Barton says, “You may need less in your retirement piggy bank if you tap into your home equity.”

Check this out: A 2016 Financial Planning Association study showed that those using reverse mortgage lines of credit were twice as likely to achieve financial success in retirement than those who didn’t use it. Now, that’s something to put in your retirement hat, isn’t it?

MYTH #3: REVERSE MORTGAGES – AN AVALANCHE OF COSTS

Reverse mortgages might sound like they will suck your savings dry faster than a desert, but are they really that expensive? “Well, that’s a relative term,” Barton remarks. Yeah, there are upfront costs. But they can often be absorbed into the loan.

Unlike traditional mortgages, you don’t need to make any monthly payments, which is a pretty sweet deal. You repay when you step off the property ladder. And even if the balance grows, you won’t cough up more than the fair market value of your property. Not too shabby, huh?

MYTH #4: REVERSE MORTGAGES – GOODBYE INHERITANCE

Contrary to popular belief, reverse mortgages don’t rob your heirs of their inheritance. Even if you opt for this financial route, your dear ones still have options. They can sell the house, deal with the lender directly, or get a mortgage to repay the reverse mortgage. Plus, if the balance is larger than the home’s value, they only owe up to 95% of the property’s appraised worth. So, in truth, they are getting a 5% discount!

And no, they don’t have to forcibly sell the house. Ain’t nobody forcing nobody to do anything. “Most grown-up kids don’t want the hassle of moving into their parents’ house anyway,” insists Barton. “So, selling is usually the preferred choice, whether it’s a regular or a reverse mortgage.”

MYTH #5: REVERSE MORTGAGES – TRANSFER OF THE BATON

Another popular myth is that once you sign the reverse mortgage papers, you hand over the reins of your home to someone else. But that’s just not true. Sure, the lender will step in if things go belly-up, so you need to keep up with your end of the bargain. Live in the property, maintain it well, and keep up-to-date on insurance and tax payments. Sounds fair, right?

“In fact, a reverse mortgage can ease the strain on your retirement fund by covering these regular expenses. It’s more likely to help you keep your home in the long run, not less,” Barton points out.

You made it!

Congratulations! You’ve just debunked some of the stickiest myths around reverse mortgages and are now armed with the facts. Now, go forth and rock your retirement!

While you’re at it, why not check out some related reads?

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