But It Gets Worse "No problem," you might say. "Just pay off the loan on time, and you'll go on your merry way." That's where we hit a fatal snag... Reverse mortgage borrowers have only one year after they move or pass away to pay off their enormous upfront allowances. What's more, if a borrower ever stops living primarily in the home or falls behind on property taxes, home maintenance or insurance during the life of their loan, the lender can come and demand their money back early. Not to mention that if a borrower passes away before the loan expires, any heirs to the home are on the hook for the fees. In addition, any cohabitants who aren't on the agreement could need to vacate the premises. There are many provisions that protect the lender - and few that protect the borrower. Chief Income Strategist Marc Lichtenfeld likes to compare reverse mortgages to annuities because they can be vague, dastardly and expensive. And as with annuities, the spirit behind reverse mortgages can be downright dishonest. You may remember that several years ago, annuity sales plummeted when the advisors who recommended them were required to act as fiduciaries (advisors who work in a client's best interests). The chart above shows the volume of reverse mortgages peddled leading up to the spring of 2018, when more restrictions were placed on sales. Most of those restrictions protected borrowers. It's clear that lenders are well aware of how dangerous these investments can be. If you have no other way to fund your retirement and you have a large amount of equity in your home, you could look into a reverse mortgage as a way to afford high upfront expenses - but even in that case, it may be more prudent to downsize. If lenders don't have a vested interest in protecting you, it's up to you to protect yourself. Good investing, Mable |
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