One of the most frequent questions we hear is, “Do reverse mortgages make sense?” But that’s not where the conversation starts. Over the last 9 years I’ve seen a recurring pattern that goes like this: rejection, confusion, understanding, disbelief, acceptance.
The Rejection stage reminds me of a quote: What we don't understand, we fear. What we fear, we judge as evil. What we judge as evil, we attempt to control. And what we cannot control...we attack. –D. Brown
When people learn reverse mortgages are safe, highly-regulated, government-insured loans, they realize those who say, “Reverse mortgages are a scam,” are ignorant; they just lack knowledge.
I find my smartest friends are the ones who are most comfortable saying, “I don’t understand,” or “How does that work?” This is something I really try to encourage my children to embrace – be inquisitive and never feel uncomfortable about not knowing something. None of us will live long enough to know everything. I don’t know about you but I get excited when I learn something I forgot I once knew.
The Confusion stage is where people ask a lot of questions.
The ten most common reverse mortgage questions are:
- At what age can you get a reverse mortgage?
- Do I qualify for a reverse mortgage?
- Do reverse mortgages accrue interest?
- Do you make payments on a reverse mortgage?
- Do you need equity for a reverse mortgage?
- How can you default on a reverse mortgage?
- How much can I borrow on a reverse mortgage?
- What can a reverse mortgage be used for?
- How do you pay off a reverse mortgage?
- What are the pros and cons of a reverse mortgage?
Going from confusion to understanding is always a process, a back and forth conversation about facts and dispelling misconceptions.
Understanding is about patience and helping people verbalize their concerns.
There are so many legitimate sources now talking about reverse mortgages being an appropriate financial tool but people want more than facts. They want someone who will talk about a reverse mortgage in the context of their circumstances. What keeps this interesting for me and my team is that no two people have the same circumstances.
The Disbelief stage is my favorite.
I’ve found the best way to help people go from disbelief to acceptance is through stories. Let me give you an example.
Years ago I received a referral from a financial advisor at Oppenheimer Wealth Management. We’ll call her Ms. Smith (not her real name). She really was a wonderful woman – even at the beginning when she was under tremendous stress.
Nine years before we met, Ms. Smith retired from an aerospace company. As a single head of household, she elected to take a 10-year payout on her retirement. She knew this would be problematic in the future but she needed the larger monthly income because she was raising two grandkids (that’s a separate story but part of what made her so inspirational). She received social security but her retirement income of approximately $1,000 per month was about to stop. It gets worse…
When we spoke, I learned that her current mortgage was 90 days past due and foreclosure proceedings were beginning. Ms. Smith only owed $30,000 on a $500,000 condo. That thirty thousand was a home equity line of credit she used for emergencies like child expenses and home repairs. Basically she was using that line of credit to supplement her income to the tune of $3k per year, for ten years.
Selling her condo at this point was a bad option for two reasons: 1.) With the imminent foreclosure, time was of the essence and she would be in no position to command top dollar. 2). Rent for a comparable property, in the same school district, would be far more than she was currently paying. If she consumed her sale proceeds by renting, it would just be a matter of time before she was out of money and homeless. Not to mention she would no longer own an appreciating asset.
And, Ms. Smith’s home needed repairs and her grandson was turning 18; she wanted to help, even a little, with college – she was proud he got accepted. Had she not stepped up and raised him; he would have had a very different outcome.
We helped Ms. Smith get a reverse mortgage that paid off the existing, delinquent, line of credit – foreclosure problem solved. We also got her a tenure payment of roughly $1,000 per month that would last as long as she lived in the home (keep in mind she has no mortgage payment). And, we were able to get her a new $30k line of credit for emergencies and needed repairs.
So, do reverse mortgages make sense? The financial advisor who connected us clearly saw that it made sense. Ms. Smith… well she used different words. She said it gave her back her dignity, her independence, and protected the lifestyle she worked so hard to build.
The most common Disbelief phrase we hear is, “Now that I understand how reverse mortgages work, why don’t more people get them?” It’s a great question because it is at the heart of America’s biggest challenge – insufficient retirement income and savings. The next question people tend to ask is, "How do I get a reverse mortgage."
To conclude, Acceptance, comes from understanding. Understanding so often comes when we’re connected to someone who cares, someone who chooses to help us – like your favorite teacher in school. We love what we do. It means everything to us that we can make a difference for others. True, we can’t help everyone but we make quite a difference for a few.
If you’d like to talk about and see if a reverse mortgage makes sense for you, we’d be happy to talk with you. Click the button below to schedule a complimentary phone consultation.
About the Author
Kent Kopen earned the Reverse Mortgage Specialist designation, March 2007. Mr. Kopen is a proud member of NRMLA (National Reverse Mortgage Lenders Association). His team offers strategies to professionals in other fields who offer financial advice to the public. "Our resources are designed to help financial advisors, CPAs, estate planning attorneys, and insurance professionals help seniors optimize their home equity to provide greater security, peace of mind, and lifestyle."