Hey there.  Remember me?  Yeah, I know…it’s been a few days since I’ve written.  Writer’s block hits us all at some point, I guess.

Yesterday, I ran into a blog post by a gentleman who posted his opposition to reverse mortgage.  He stated the usual half-truths, which I believe were not malicious, but genuinely out of not understanding the product or the population for whom reverse mortgages are designed.

The misconception in his column that I wish to address today is this:

“instead of leaving your children a home, you would be leaving them with a mortgage to pay off instead”

This comment does two different things.  First, it clearly indicates his concern is less with the senior, and more with the adult children.  I do not believe he has complete disregard for seniors, but it does suggest that the senior is somehow still obligated, if only morally, to sacrifice their good for that of their children.  In reality, there are very few people who would not want to leave something of material value behind for their children.   However, should that be done at the expense of the senior’s best interest?

The second thing this comment does is expose the author’s bias against reverse mortgage.  You see, a significant percentage of seniors still have mortgage debt, and many die before they have paid it off.  And many of those who are still living expect to die before they pay off their mortgage.  Having to deal with some kind of lien against the home is common.  This is not unique to reverse mortgage.

It should be understood that heirs are not saddled with the balance of a reverse mortgage. As with any lien against the home, the heirs may sell the home and pay off the balance owed.  Any funds above and beyond the loan balance is theirs.  This is no different for a reverse or “forward” mortgage.  And of course, if the heir(s) would like to keep the home, they may secure their own financing.  In most cases, they get a home below market value by only paying what’s owed.  What is unique about the reverse mortgage is that if, for any reason, the home is “upside down”, the heirs are not liable to pay the difference.

Can that be said of a conventional loan?

Reverse mortgages are non-recourse loans.  The lender will only receive the balance of the loan, or the fair market value of the home…whichever is less.  I met with a couple recently who have a negative amortization loan.  They are significantly upside down, and feeling the pressure.  They have absolutely no options.  They not only have payments, but selling their home won’t even bring them even.  They wish to God they could qualify for a reverse mortgage.

And so do their children.