What Boomers Should Know About Reverse Mortgages For Mom And Dad

It would truly have to be the last source for income because at the end of the day there is not anything left, says James Holtzman, a certified financial planner with Legend Financial Advisors, Pittsburgh. If a person is tapped out of resources, then it can be a viable option, he continues.

If a client had a financially comfortable relative who could buy the property as an investment and then rent it to them, that could be a better way to tap the value of that clients home, he says.

An even better solution, Holtzman continues, is to work with a client early enough so there is no need to take out a reverse mortgage. Helping a client to understand the need for long term care insurance or Medigap insurance can help prevent the financial need from developing, he explains.

Among the testimonials offered by NRMLA are several that cite use of the funds for quality of life purposes including buying a new motorized camper to travel.

But planners say a reverse mortgagewith costs that can run 6% of the equity that is tappedis a costly way to improve ones living standard.

The person taking out the mortgage might not see it, according to George Middleton, a financial advisor with Limoges Investment Management, P.C., Vancouver, Wash. But, when that person dies and the heirs have to pay off the mortgage, that is often when it becomes apparent, he adds. There is the potential among boomers who would have received the equity in the property to resent the loss of that inheritance, he says.

Andy Keeler, a certified financial planner in Dublin, Ohio, cites the expense as a reason for not recommending a reverse mortgage. He says a client accessing $100,000 in equity is looking at a $6,000 "haircut." A better solution, he says, is for the boomers parent to take out a home equity loan or a home equity line of credit.

There are instances when a reverse mortgage can improve the quality of a persons life and can be an option if that individual is in good health and is not concerned about leaving an estate, says Bedda Emous, a certified financial planner with Fiduciary Solutions, LLC, North Andover, Mass.

However, she says that as a fee-only advisor, her mentality is "thou shalt not have debt when you retire." So, she continues, she is wary of people assuming a reverse mortgage later in life.

Many parents of boomers have been careful with their resources all their life and have their homes paid, as well as income from Social Security and defined pension plans, Emous adds. "That generation doesnt have Gucci-Pucci tastes," she says. So, a reverse mortgage may not be necessary.

And, even if money is needed for medical expenses for one spouse, Emous offers a note of caution. The surviving spouse is often the wife and if there is a reverse mortgage, there is the danger she will not have a place to live, as well as the potential for loss of Social Security and pension benefits. So, if a reverse mortgage is being considered, these factors should be weighed, she says.

Reproduced from National Underwriter Edition, May 21, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.