There’s a lot of talk these days about reverse mortgages, and whether or not they are a good idea. While I think they are dangerous, I think the real danger is in people not knowing what they are and getting involved with these mortgages anyway. It’s my opinion that you should never sign your name to anything that you do not completely understand (that is how people got into trouble with the sub prime mortgages), and therefore, you shouldn’t take out a mortgage (or other financial product) you don’t understand.
So, what is a reverse mortgage? Well, you can read the full description here, but a simple explanation is that it is a loan for senior citizens, used to release (give back to the owner) the equity of the property as one lump sum or multiple payments over time. The home owner’s obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves (usually going to a long term care facility).
Today’s article (CNN Money Blog post) is titled Reverse mortgages: Sub prime mess déjà vu?, by Carla Fried. It looks at how a lot of retirees are taking out reverse mortgages, since they have insufficient nest eggs to carry them through retirement, and how a lot of people, Comptrollor of the Currency John Dugan included, think these financial products have some of the same characteristics as sub prime mortgages. Considering the mess to which the sub prime mortgages contributed, that should definitely make us be wary of these products.
Some resources to check into, if you want to learn even more about reverse mortgages and their pitfalls, are as follows:
- AARP.org – A section on this website is dedicated educating seniors on reverse mortgage basics, their alternatives and ways that the financial product might be abused. Check out the web page here.
- U.S. Department of Housing and Urban Development – An informative website put on by the government. It’s not as suspicious of the reverse mortgage product as the AARP website, but it still speaks of the dangers of scam artists peddling information that they give away on their website for free!
I know that there are some people who think these products have their place, but I have to disagree. As I have said, I’m fine with 15 yeaar fixed rate mortgages, but products like these, just seem to part people with their money. Make your own choice, but don’t say I didn’t warn you.
Tags: accountability, Finances, Financial planning, Mortgage, Personal responsibility
