We just received this comment on our blog:
It boils down to the saying “if it’s too good to be true, then it is “I watched this actor named Tom Selleck pitching for reverse mortgage on a tv commercial. Sounds very convincing even to the point of him swearing to have done his homework on the matter and telling the truth. An actor worth millions and before him was the other actor, Robert Wagner. Yet, does he really need to do a reverse mortgage on his estate? With his king of dough? Back in the day, they called it snake oil salesmen. How can they look at the camera and say that the house remains yours when you have signed a lien on it? Yes, they give some cash but at what price? Don’t get me wrong, without demand there’s no supply. Economics 101. This is the same as payday loans. It’s totally legal yet seizing on the necessity of the poor.
Where do I begin? Firstly, a reverse mortgage is a loan secured by your property, and all mortgages are liens against the property. Just because you have a lien against the property does not mean you don’t own the property; it means you owe something to someone.
You can still do whatever you want with the property and sell it at any time, but the title company will ensure that the lien holder is paid and that the title is clear before they issue a clear title policy to the new owner. This is also true for forward loans – it works the same way.
Yes, Tom Selleck is a paid spokesman.
Tom Selleck is a paid spokesman for another lender. Over the years, several notable celebrities have represented reverse mortgage companies, including Robert Wagner, Henry “The Fonz” Winkler, former US Senator Fred Thompson, and Law and Order’s Jerry Orbach.
Lesser-known celebrities such as Bill Medley from the Righteous Brothers did a reverse mortgage commercial, and so did 1950s pop singer Pat Boone. Even David Spade has done parody commercials about reverse mortgages. But the bottom line is that they are paid actors doing commercials.
Did Tom Selleck do “his homework” before he decided to represent a reverse mortgage company? I cannot say, but I have no reason to doubt him. I was a mortgage banking professional for almost 30 years when my mother asked me about the loan, and I had to answer honestly that I had never originated one. I had to look into them because I had to do some research on my own.
It doesn’t mean that I needed a reverse mortgage or qualified for one at the time based on my age then, but I had to research it to answer my mother’s questions. I don’t think Mr. Selleck is lying because he doesn’t need the loan personally.
If the man says he researched the program (possibly to determine whether to accept the offer to become the spokesman), I have no call to doubt his word.
Let’s look at your mischaracterization…
I certainly would not consider myself a snake oil salesman and would never do anything that would hurt my mom. My mom had a home free and clear but had a problem. She had enough income to get by each month, but about the 15th of each month, she shut down all discretionary spending.
She was very active at the time, and that meant she did not bowl as much as she wanted to, did not golf when she wanted to, and probably even more important than that, I found out that she was putting off improvements in her home that she really could use.
Things like the aluminum sliding windows that had since long before had the gliding parts worn out would “thump, thump, thump” through the tracks, making them impossible for her to open and close.
Her air conditioning system in her 45-year-old home had long since stopped working, and she wanted to update her kitchen and bathrooms. She wanted them fixed and found a way to do it but wanted my input since I was the resident mortgage banker in the family. All things she could not do with her income but never let on to us.
We reviewed the reverse mortgage terms on a modified tenure program for her. She made the improvements the home needed and lived happily in the home for over 10 years with the loan. She got some cash to do the upgrades she wanted and a monthly income from the loan.
Is borrowing from your equity a downside?
So, what is the downside of a reverse mortgage? There was not as much equity when we were forced to sell the home when mom had to leave, so my brother, sister, and I will not get as large an inheritance later. Oh well! That was my mom’s house. She bought and paid for it, and if she had used every dime of her equity to live happily there, I would not have been disappointed.
I am thrilled knowing my mom could live a full life without monetary concerns with her reverse mortgage. It was immediately after we did her loan that we became a full-time reverse mortgage lenders. I have been closing solely reverse mortgages for almost 15 years now, and I have helped save homes from foreclosure and helped seniors live full lives. I have never been happier as a lender.
But then again, we have always believed that loan is not suitable for everyone from the start. The loan does not help everyone, and we aren’t afraid to tell people when it isn’t the right choice. Our job is to inform, educate, and let borrowers make an informed decision – not sell a product.
The loan can be wrong for several reasons. This isn’t right for you if you still can’t afford to pay your taxes and insurance and live comfortably after the loan closes. If this is a temporary situation, you should seek other options as the fees, including the HUD mortgage insurance, do not make the loan an affordable short-term option.
Consider ALL options
Suppose your goal is to leave a large inheritance for family members. In that case, you need to consider whether you can make payments to keep the interest from accruing or consider another option (payments are never required on a reverse mortgage but can be made at any time up to payment in full with no penalty). If the house is not where you want to stay, consider downsizing or moving before you begin to use your equity.
You have complete control over the amount of interest that accrues on the loan. If you do not want the balance to rise, you can pay the interest only monthly, more than interest only, and the balance will decline, or some amount less than interest only, and the balance will rise but more slowly. It is entirely your call.
You could also ask family members if they want to create their reverse mortgage for you. They would loan you the money, and are repaid with the equity in the home when you pass. After all, they also lose if you cannot afford the home and let it fall into disrepair or lose it to foreclosure.
Discuss with your family
We advocate that borrowers talk to family members affected before the loan closes. Unless your whole family is estranged or you have no heirs, and you are not concerned with the remaining equity, it is always good to let them know what you are doing and what options they will have, how to exercise those options, and make provisions. At the same time, you are still alive and well.
You can sign all the paperwork and let your wishes be known while you are alive and competent, but if you wait until you pass with no trust or even a will, families tend to clash. Please set up your heirs with your lenders before you pass so they can communicate with them later.
You’re in control
You are correct in that nothing is ever free. If you borrow money, there is a cost. But this is true with all home loans. The difference is that with a reverse mortgage, you do not HAVE to make a monthly payment, so you can live in the home for life if you pay your taxes and insurance without making any monthly mortgage payments.
And if you do choose to make payments, if something comes up and you can’t make a payment one month, there is no adverse effect on your credit or worry about the lender’s foreclosure because there was no payment due in the first place. That’s what you get when you get a reverse mortgage.
You don’t get free money. You don’t get a handout; you can use your equity instead of your income to live in the home. It’s not a payday loan, bridge loan, or Home Equity Line of Credit. You aren’t robbing Peter to pay Paul on a series of short-term loans. You must keep scrambling to make payments and pay pack.
Is it Right for Your Retirement?
A reverse mortgage is the last loan you will ever need; if that is what you want and need, it might be a perfect instrument for you. If not, then don’t get one! There are a lot of very savvy borrowers and economists who also use reverse mortgages when appropriate.
And finally, we do not hire spokespersons just because if you do, you must pay them. We would instead give our borrowers the best possible loan terms with the lowest potential costs, and we encourage people to shop with several lenders. The bigger the name, the more expensive the paycheck.
So, while we will not go the route of a celebrity spokesperson, we still won’t impugn Mr. Selleck’s motives or question his assertions that he’s done his homework. We have done ours, and there is no snake oil for sale here, just an honest program that is great for some and doesn’t work for all. Only you can choose to which group you belong.