What is the downside to a Reverse Mortgage?

Is there a downside to a Reverse Mortgage and, what are the “Pro’s & Con’s” of a HECM are questions that must be answered.

Since I am a Reverse Mortgage broker and company owner, I am a true believer in the loan and the program. So I’m not going to answer those questions from my perspective, instead I’ll share what other people have told me; pro & con, upside & downside.

First, The “Cons” Of A Reverse Mortgage.

Over the years I’ve had a number of people tell me they are not interested in a Reverse Mortgage. When I hear that, I ask this, “Could you please tell me why you’re not interested in a Reverse Mortgage?”

Here are some of the reasons people are “Not Interested”. I’ve discovered their “Cons” are based on some strong convictions. 

• They do not want the US government connected to their home in any way, shape or form.  
• If they have a mortgage, they have a plan for making their payments in retirement. 
• They don’t have a mortgage, and they do not want to add any type of new mortgage.
• They have enough monthly money. 
• They are simply not interested and that is that. (I’ll add, if they’re not open to a conversation, I leave it at that)

If you look for negative information, you will find negative information. If you search for positive information, you will find plenty of that as well.

The downside of researching both positive and negative information is that the most important factor in a Reverse Mortgage is usually missing: Your story.

“You have information, we’re interested in your situation”

The ‘Pro” Side Of A Reverse Mortgage

Then there is this story. A wonderful couple contacted me about a Reverse Mortgage. At that time the wife had been in cancer treatment for 15 years. The husband had lost his wholesale flower business in a downturn late in his career.   

They owed about $75,000 on a home that was worth around $400,000. They were getting by on Social Security and a small stash of quickly dwindling cash. 

We talked, they attended counseling, we completed the loan process and got a clear to close .(CTC)

As we were signing the closing documents at their table, Don looked at me and said, “Mark, what is the downside to a Reverse Mortgage?”

He kind of caught me off guard, because at that time I hadn’t thought much about the downside, or the “Cons” of a HECM.

“Well Don, I can’t really think of any…” So I tossed it back at him. “Can you see any downsides?”

He smiled and said, “The only one I can think of is if we aren’t able to get through this stack of papers.”

Update On Don And His Wife.

About two years after we closed their Reverse, I got a call from Don. I was on with someone so I rang him right back. 

“Hi Don, it’s Mark calling back.”

Hey Mark, I figured you were so busy counting your money you couldn’t answer the phone.” I laughed. I wished he was right.

He called me about two things: First, his wife had died. I was sad, she was a lovely and gracious person who treated me like an honored guest, even though she was suffering everytime I visited.

With her gone he wanted to know if he needed to do anything different about his loan. I told him no, nothing needed to be done.

Then he said, “I’ve been getting lots of letters about Refinancing my Reverse. I figured I should ask you about that since you’re our guy.” 

I looked at his current value, the interest rate and his age. (His wife was a bit younger) And he mentioned that his son was now living with him. “Is your son 62 or older?” I asked.

“No, he’s not. Why?” he asked.

“It could be possible to put him on your loan if you want him to have your house.”

We refinanced his Reverse, in his name. His value had gone up considerably in the past several years. (That’s Denver) He got about $35,000 more in his Line of Credit, and I was able to pay for the entire refinance. (When I can, I do that)

Yes, he was able to get through the big stack of papers, again.

A Real Reverse Mortgage Story.

Thanks for stopping, looking & listening

Mark Schmidt