Smart Bankers SELL Reverse Mortgages (They Don’t Buy Them!)



Reverse mortgages are touted by TV advertisers and knocked by the New York Times, which is in turn savaged by a university professor (Reverse Mortgages) while the financial sky is preparing to fall (World Economy).. Or not. Retirees staring at their futures in murky crystal balls worry about their finances. Well, they should.

First, those reverse mortgages: A reverse mortgage is a loan guaranteed by your house. It’s paid to you in monthly installments, based on the market value of that house. When the entire amount has been paid over to the borrower, it must be paid back or the house handed over. That’s like buying an annuity with your house, except that you can live in it until the end is reached. You may decide for yourself whether that is a good idea after I ask you one simple question: Do you wish to buy a fixed annuity today, committing to an unchanging periodic payment to you, with prospects for inflation threatening the purchasing power of that payment as time passes? A reverse mortgage paying you $2,000 a month based on the present value of your house may seem fair now. Will you still like it in ten years when inflation raises home values and reduces the purchasing power of money but your reverse mortgage payments remain unchanged? Of course, maybe home prices will drop and your payments will look like a bargain, who knows? That’s the chance you take. But since inflation is good for governments, that’s the way I’d bet. You may decide for yourself…

There’s another angle, too. When (or if you prefer, if) the financial sky falls on us, would you prefer to own a home in which you can live, or a stream of unchanging payments that. if things get bad enough, may inconveniently just stop? It’s up to you, right? Somehow, I doubt that professor pushing revere mortgages will show up to help if you need it. Seems to me, unusual though it may be these days, the New York times was right on.

About Jack Curtis

Suspicious of government, doubtful of economics, fond of figure skating (but the off-ice part, not so much) Couple of degrees in government, a few medals in figure skating; just reading and suspicion for economics ...
This entry was posted in Bank Failure, Banks, Debt, Finance, Future, Home Ownership, Inflation and tagged , , , , , . Bookmark the permalink.

2 Responses to Smart Bankers SELL Reverse Mortgages (They Don’t Buy Them!)

  1. the unit says:

    I guess it is a situation that has to be considered situation by situation. Mom in Law did it maybe a year or so before real estate collapse. All was paid off prior. She be 90 in June. So far all’s well with her. Contending with a little cancer, but doing well. Four kids know what’s kept her out of poor house and that they will have nothing to fight over when she’s finally gone. They glad for her. Yeah, bank will own it. Mom took care of it and didn’t cost them a penny.

    • Jack Curtis says:

      Reverse mortgages are subject to two risks that need to be considered with care, seems to me: 1. Will the bank still remain able to pay until the end? That was a better bet a few years ago than it seems now, at least to me. 2. Will the recipient of the payments be sure to die before inflation makes those payments inadequate? Again, the past appears safer than the future.

      Seems your mom won her toss, not all are likely to…

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