Wary of Robert Wagner

June 13, 2012 4:36 PM

Please explain reverse mortgages to me and whether this is a good idea for my mother.

My elderly mother (mid-'70s) is insisting she needs to enter into a reverse mortgage situation (HECM), and while this sounds bad to me on a gut level (I guess I've always assumed these were kind of a scam with ridiculous fees attached), I would like some further information about pro and cons, and possible alternatives.

I'm mainly worried because my mother is in her current financial situation due to a rather spendthrifty nature since my father died about 15 years ago. She's specifically focused her attention on the "line of credit" option for payment plans under the reverse mortgage, which means she wouldn't be held to a fixed monthly income. Every time my brother and I bring up the need to work on a budget, she gets mad and swears she is living as close to the bone as she possibly can but refuses to show us her monthly expenditures. She did have to prepare an expenditure breakdown for some third-party counselors before further talks with a lender, but I have no idea if they looked at the breakdown to find possible areas to reduce or not.

So, what happens when/if she burns through this money she gets from this reverse mortgage? If I understand it correctly, she gets to stay in the house, but is she going to have to pay any continuing fees to the lender if/when this happens?

Is this reverse mortgage a better/worse idea than, say:

- a home equity loan
- me buying the home from her and then charging some nominal rent (I wouldn't live there, and wouldn't be able to afford it without getting some $ back)
- her selling her home and moving into a smaller apartment (I know this one sounds cold, but she's already talking about this for the future)

Or are there other sensible alternatives?

I am also concerned about how these HECM payouts would affect her Social Security and Medicare. She does have a tax man/"financial advisor," but he has admitted he knows nothing about reverse mortgages (is this normal for a financial advisor?) and neither my brother nor I trust him after he got her in hot water with the IRS a couple of years ago during an audit. She lives in California.

posted by queensissy to Work & Money (5 answers total)

I know this one sounds cold

No it doesn't. It sounds eminently sensible. Who wants to keep up a house in their elder years? That said, she needs a different financial advisor (and perhaps a consultation with a tax accountant is in order as well).
posted by Inspector.Gadget at 5:29 PM on June 13, 2012

Why not just encourage her to sell her place and get a smaller one instead? My mother was also the target of salespeople pushing reverse mortgages; she ended up with too many health problems to have time to do one, but talked about it a lot. It always sounded iffy to me, especially since so many people seemed so eager to do one for her in a crappy housing market. There has to be a catch, hopefully someone else has better info for you.

But if your mom already has money issues, a smaller place with lower utilities and less responsibility seems good, especially if she's already talking about doing that.
posted by emjaybee at 6:36 PM on June 13, 2012

Is her house too big? The fees on reverse mortgages are big, and other things are usually a better deal, but they can be great for extra income. You can’t take your house with you.
posted by bongo_x at 7:12 PM on June 13, 2012

The FTC, a consumer protection agency, has this nifty website which discusses the basics of reverse mortgages, including what to look out for. The site links to others with more information (check out, in particular, the link to the AARP website), and provides additional contact information for organizations that can provide additional help.
posted by HabeasCorpus at 10:06 PM on June 13, 2012 [1 favorite]

Best answer: She sounds financially immature. Even if a reverse mortgage is right for her, she will still end up depending on you and your brother at some point. Now is the time to get creative. Talk to your brother. Look for ways to ensure that mom has a home for the rest of her life.
Some ideas,

Look into retirement communities that will allow her to buy a small apartment or condo and live there, no matter what, until she dies.

If her home equity is good, ask her to sell the house and give the money to you and your brother. You can then use the money to buy a small condo and then put the rest of it into savings that she cannot touch.

Do the above and buy a four-plex. She can live in one apartment and rent out the other three. You and your brother should be co-owners, with her as a tenant only. Allow her to keep the rent on one of the apartments for her spending money.
posted by myselfasme at 2:33 AM on June 14, 2012 [1 favorite]