Reverse Mortgages Have Their Place
As published in the Baltimore Sun on March 9, 2018:
Regarding the March 1 Op-Ed “Don’t fall victim to the reverse mortgage con”:
In his recent commentary, “Don’t fall victim to the reverse mortgage con” (March 1), Art Ernst shows a fundamental misunderstanding of how reverse mortgage loans work and the long-term financial benefits of incorporating home equity into an overall retirement financial plan. Research published by the Society of Actuaries, for example, shows how regular payments from a reverse mortgage can help households stretch their retirement funds to meet the demands of longevity, making the loan a valuable option even when you factor in the initial cost of getting it.
Mr. Ernst begins his criticism of reverse mortgages, which more than a million senior homeowners have used to supplement retirement savings and age in place, with a straw man argument about the short-term cost of the loan. Reverse mortgages were never intended to be used in this manner and rarely, if ever, are. The author’s biggest objections to reverse mortgage loans rest erroneously on the myth that with a reverse mortgage, the bank owns or eventually takes ownership of the home. This is not true; borrowers never give up title or ownership of their property.
When a reverse mortgage borrower, or their estate, sells the home, they keep any proceeds from the sale after repaying the balance due on the loan. Or, if the loan balance exceeds the home’s market value when the loan becomes due, the borrower or estate will never owe the lender more than the value of the home. But, Mr. Ernst doesn’t mention that in his opinion piece. Instead, he suggests selling and moving to receive 100 percent of the home’s value which assumes that there are no existing mortgage liens on the home.
Another suggestion from Mr. Ernst is to get a term loan or home equity line of credit which would require a monthly payment. Most importantly, the author’s disdain for reverse mortgages is not shared by the majority of older homeowners who actually have one. A 2016 study from Ohio State University that analyzed the use of reverse mortgage loans to preserve independent living showed that four out of five senior homeowners who have a reverse mortgage are satisfied with their decision to get one.
There is no “one size fits all” in retirement planning. No one financial strategy or home equity solution is right for everyone, and all options should be researched before making a decision. But it would be a shame for readers of The Baltimore Sun to avoid considering one possible solution because Mr. Ernst has perpetuated some common misperceptions about reverse mortgages, rather than explaining them properly.
Peter Bell, Washington, D.C.
The writer is president and CEO of the Reverse Mortgage Lenders Association.