I have written about reverse mortgages numerous times:
Should You Get a Reverse Mortgage? No.
Reverse Mortgages Revisited.
Another Reason Not to Get a Reverse Mortgage.
Yet Another Reason Not to Get a Reverse Mortgage.
The Retirement Meltdown is Here.
Get Out of the House!
When the Millers took out the reverse mortgage about a decade ago, they were looking for financial help after Kenneth was laid off from a local defense company. They hoped the new loan would help them pay off their old mortgage, while avoiding monthly loan payments and getting some extra income to boot.
They say they realized only too late that the reverse would net them only a one-time lump sum in cash of $580 after paying off the old loan, money they quickly spent. With $532 in accrued interest added each month to the amount they owe on their loan, their debt has climbed to more than $115,000.
The Millers said they knew they were supposed to pay taxes and insurance but fell behind after several deaths in the family requiring burial costs. They worked with their loan servicer to come up with a payment plan, amended last year to cover unpaid taxes, their records indicate.
And no, no one has a "right" to live in an expensive area just because they'd like to. I run into this all the time with Liberals - some even arguing that homeless people have a right to housing, even in a resort community! Thankfully that sort of nonsense is largely confined to Key West.
But taxes and insurance can add up, particularly if you are already financially stressed. And your "golden years" are no time to be financially stressed. My insurance and taxes top about $4000 a year already. In some areas, property taxes can be even more onerous, even if you have "tax relief" as a senior. One reason we left New York was an $8000 property tax bill.
So the Catch-22 conundrum of Reverse Mortgages - if you are already financially stressed, a reverse-mortgage may not offer any relief, but in fact make matters worse. If you are not financially stressed, well, you don't need a reverse mortgage.
But the upshot is, there is no point in owning "things" in life - a house, a car, or whatever, if they ultimately make you unhappy due to financial stress. And the sob stories in the article are about people who thought they could keep their home even though they were in debt over their heads - the life-ring of the reverse mortgage turned out to be made of lead.
This second article tells another tale of woe from seniors who not only fell behind on their insurance and taxes, but failed to keep up their house. You see, one of the other terms of a reverse mortgage is that you have to keep the house in good repair. You can't just let it fall down around you and say, "Screw it, I'll be dead anyway and the reverse mortgage people can go fuck themselves!"
And people who are older and infirm and broke, who are having trouble paying their property taxes and homeowner's insurance - often fail to do basic maintenance such as gutter cleaning and whatnot. Severe damage can occur to a home over time if basic maintenance is not performed, which is why abandoned houses often need to be bulldozed if they are not occupied for more than a few years.
The second problem is big-ticket items like new roofs, new HVAC systems, and new appliances. As I have tried to emphasize in this blog again and again, a house is just a thing you own not some mystical "home" or "homestead". It is a complicated and expensive thing as well (without people making it unnecessarily complicated with fancy shit, either!). Appliances, including hot water heaters, HVAC systems, stoves, refrigerators, etc., have a design life of about 15 years. A roof may last 15-20 years before it too, needs to be replaced.
These "sudden" expenses of thousands of dollars may take a homeowner by surprise - but they really shouldn't, as any responsible homeowner should budget for them. And I've seen firsthand, neighbors and friends who spend thousands of dollars on yard tchotchke but fail to set aside a rainy day fund for the roof.
People simply don't think about this stuff.
The second article regards a lawsuit, as the mortgage company ordered "inspections" of the home in question, once the borrower (and you are a borrower with a reverse mortgage!) fell behind on taxes and insurance. Each "inspection" was charged to the borrower by increasing the balance on the loan.
The more I learn about reverse mortgages, the less enthusiastic I am about them. There are so many pitfalls and so few advantages. People are succumbing to emotional thinking when they get a reverse mortgage - holding the value of a "home" (which is just a house) over their own financial well-being.
Better to sell, if you are stressed financially. Better to move to a different house than to be unhappy and worrying about money in retirement.
A house is just a thing. Getting attached to it emotionally is a recipe for financial disaster. So many instances of financial struggle revolve around houses - people hanging on to them too long out of pride, people buying a fancy house to show off, people thinking their houses are some sort of Fort Knox gold vault. Get out of the "home" mentality and into the "house" one - it will save you a world of woe.