Tom Selleck seemed like a trustworthy spokesman. Not that I'm in a position to get a reverse mortgage. But he made it sound like a good idea for some people (who aren't wealthy Hollywood stars, I assume). Get cash, stay in the house, and retire the way you want with no mortgage payments. Just like Selleck says, it sounds too good to be true, like a reboot of Magnum P.I. I wanted to find out if it is too good to be true, but the last time I looked it up, I mostly found articles that gave the reverse mortgage the benefit of the doubt. When I saw the little disclaimer on the ad, however, I figured I'd get a straight answer.
The disclaimer was simple enough, telling us the offer was not meant for residents of Oregon. I assumed the state of Oregon decided reverse mortgages are too good to be true. Which is exactly what happened.
Here's what Oregon says reverse mortgage companies need to do so that potential clients understand whether or not the service is too good to be true:
(1) at the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds; (2) charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees; (3) the loan balance grows over time and interest is charged on the outstanding balance; (4) the borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home; and (5) interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment
Florida, where I live, allows reverse mortgages to exist here, instead deciding to set up a fund to help people who have been swindled afterwards. I kid you not. It's like allowing ponzi schemes or auto theft and then just helping people out after it's all over.
Selleck says it's not just another way for your bank to get your house. Probably because it's a way for some other company that isn't even a bank to get your house if you don't pay off the LOAN. That's what it is, a loan with your house as collateral. You will owe money on the loan, just like a real mortgage. It's reverse because it's ass-backwards. You live in the house, die, and then your kids lose the house to pay off your stupid loan.
The best way to get money out of your house for retirement is just to sell the dang thing. Or rent it out. That's the way to tap the equity of your house without losing it in the end.
Do you realize that it generally takes twice the cost of your house to pay it off in 30 years? So you bought a $100,000 30 years ago, gave another $100,000 to the bank, and you can get a reverse mortgage loan of $100,000 at the going interest rate (50% of a house now worth $200,000), pay another $50,000 in interest and owe Tom Selleck's bank $150,000 when it's time to kick the bucket. Forget to pay the taxes? Lose the house. Sell the house? Lose most of the profit.
When you finally sell the house for $250,000, you’'ll get to keep $100,000, having also paid $150,000 to banks to own it and stay in it.
If you just sold it after 30 years, you could take the $200,000 and downsize. Or you might get $1,500 a month in rent that you can use to rent an apartment in Florida. You own the house and can let your kids sell it for whatever they can get, since $18,000 a year in rent and Social Security is plenty for you. You're not greedy. Or stupid.
Just remember this: you did a great job in order to pay off that mortgage. Don't celebrate by taking out another loan and going back into debt. There is no shame in renting as you age, and all that stuff in your basement/garage is basically garbage. Sell your house. Never, ever choose a reverse mortgage, even if one shows up on this website in the Google ads.