Suze Orman on her CNBC show recently responded to a viewer question by stating that a reverse mortgage is a better option than selling stocks.
During the segment, a caller stated that his 85 year old father had been liquidating stocks over the past few years to pay for larger ticket items, including the upkeep of his home. His question was, “is it better for him right now to continually unload his portfolio and incur capital gains on the stocks he sells or risk borrowing, in a sense, against his kids future during these crazy times?” The father would like his two kids to inherit the home and his investments after he passes.
Suze says that a reverse mortgage would be the better option. Her reasoning is as follows:The heirs will have a better chance of recouping the lost value of stocks over the years since the stock market recovers faster than the real estate market. Reverse mortgage interest rates are low and the mortgage relief bill that came into effect in October makes reverse mortgages far more beneficial than ever to take out today than ever before because of fees being limited.
This segment highlights how a reverse mortgage can help extend the value and life of other assets when they are provided additional time to gain value before being drawn down.
When looking at retirement plans, older homeowner’s need to take a holistic approach. There is no one size fits all solution. A reverse mortgage will not be the right solution for everyone, however it should not be overlooked as part as the overall retirement plan. When consulting a retirement planner be sure to bring up the option of a reverse mortgage. After all, the home is more than likely the largest source of untapped capital for most senior home owners.
2 Replies to “Suze Orman Says Yes to Reverse Mortgages”
I just got a quote on a reverse mortgage. The cost to be upfront to borrow a 48% of the value of my home ($153,000) would be in excess of $17,000. The bulk of this cost is a huge lump sum to FHA. Why the huge cost to get my own money on the property? Home value estimated to be $350,000. Zero balance on home loan.
Thanks for your comment. You are correct. One of the largest fees to obtain a HECM reverse mortgage is the upfront Mortgage Insurance Premium (MIP). Currently, in 2022, that fee is 2% based on the maximum lending limit up to $970,800. So in your case, 2% of $350,000 or $7,000. That fee is a necessary evil. Without it, the HECM reverse mortgage likely wouldn’t exist, or it would exist with much higher rates. The MIP does offer a couple protections for both you and the lender. A HECM is a neg am loan, which means the balance will grow. It is also a non-recourse loan, meaning the home stands on its own. If the balance of the reverse mortgage grows beyond the value of the home, you or your heirs would not be responsible because of the MIP. A less expensive alternative, if you’re in a financial position to make payments, is a HELOC (Home Equity Line of Credit). With a HELOC, you could use your line of credit, for generally 10 years, then it becomes a fully amortizing loan. At any point during your HELOC, your lender could freeze or close your account. This happened a lot around 2007-2008 during the meltdown. With a HECM reverse mortgage, the line of credit can NOT be closed or frozen, no matter what happens to the home’s value.
It’s important to understand the costs and why they exist as well as understanding your alternatives. Hopefully this answered your question about the upfront MIP. If you would like us to provide you a quote, please don’t hesitate to reach out. https://www.mlsreversemortgage.com/free-info-kit/