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Myth – Reverse Mortgages Are Expensive?

28 May 2020

Pasadena, California

The idea that something is expensive only exists because we as humans are programed to compare just about everything.  So, when we hear that something costs $XXX, we search for a comparison.  When lacking a comparison, we default to an opinion we may have heard or read and adopt that as reality. The percentage of people that have taken reverse mortgage is miniscule, it is less than 1% of all mortgages.  Consider these facts:

  • All mortgages and all financial instruments have a cost
  • Every real estate transaction has a cost
  • How do you correlate cost and value
  • How to you judge the long-term financial impact of any product and compare that to its cost

Its likely helpful to understand the elements of cost by comparing how someone might approach the cost component of a key decision – in this case Bob and Sue have a home worth $750,000 and need $250,000 to create a sustainable plan for the next 20 yrs.  They can take a regular mortgage, a Reverse Mortgage or sell their home and trade down. 

So, this decision really has nothing to do with the apx $20,000 in HECM initial costs. Compared to a regular mortgage, the costs are about 5 times as much, until you consider the fact that Bob and Sue cannot afford to make payments and therefore are going to be forced to move in a few years and incur the cost of selling. What is the value of aging in place, near family, community, and health care?

An argument could be make for selling, if the homeowner did not care to “Age in Place” and no one really balks at almost $60,000 in costs – because we have just come to accept that as the “Cost of Doing Business”.

There are other equity extraction products that could be compared to a Reverse Mortgage and each has their own cost structure. In the end, cash flow in retirement is critical and can only come from Social Security, Pensions, Investments, Family or Home Equity.  The Real Question is what is the Cost of doing nothing and what are my alternatives.  

My post on how Powerful the HECM Line of Credit feature is in Retirement Plan, blows the cost component out of the water – Learn more here

You can learn more about the truths and realities of the HECM, by checking out our “7 Minute Reverse Mortgage Overview