The Ongoing Debate About Reverse Mortgages

USA Today published a piece on Reverse Mortgages warning that while it is a product to consider, borrowers should be warned. “Read the fine print. This isn’t money you lend yourself. It’s a loan using your home equity as collateral. That means interest, typically at a high rate, plus other fees and costs. Worse than paying that interest monthly, it compounds, magnifying what you owe. When you sell, you repay the principal plus all compounded interest.”, states the author Ken Fisher, the renowned investment analyst.

Fisher acknowledges the debate and cites supporters of the program but his caution is that seniors need to have plans for the money they draw out or else they will see those funds depleted and end up with significant compounded interest costs. “But it requires the elderly to invest well. Are you a strong investor? Will you be? Are you willing to risk being forced to sell your house late in life to cover a ginormous compounded interest debt, hoping there is enough left to live off of? At an age when most people need simplicity and ease, this seems unwise”, states Fisher.

We have been considering the arguments on both sides and simply caution that seniors are a more vulnerable population and while equity in retirement is an asset that can help support financial needs, there are other considerations to be included in the decision and responsible lenders must be part of that process.