Reverse Mortgage Question

[Lou Castillo]

Does anyone have any feedback on buying a property subject to a reverse mortgage lien? Are these lenders more likely to enforce the due-on-sale than lenders on traditional loans?

[Jon Holdman]

Realtyman I just have to disagree with your premise that the banks are screwing seniors with reverse mortgages. For lots of folks, the ONLY significant asset they have is their house. A whole industry makes its living on the "your house is your biggest investment" and "a home is a good investment" myths. If you read some of my other posts I argue a residence is nothing but an expensive doo-dad, same as a car or boat. A house is rarely a "good investment" once you consider the true costs. People say "I bought this house 30 years ago for $100K and now its worth $400K, woo hoo!". They forget they paid $200K in interest on the loan, another $100K in improvements and maintenance over the years, and another $100K in insurance and taxes. Their "investment" is in fact a loser.

Nevertheless, many folks end up being in retirement, have a paid off house and little or nothing in the bank. A reverse mortgage gives them money in their pocket and keeps them in their house. It beats the pants off taking out a normal HELOC, spending the money and then being on the street when they run out of cash. It also beats the heck out of doing cash out refis year after year, spending the money and being 70 years old with no income and a big fat mortgage.

You want to beat someone up, Realtyman, beat up an industry that convinces people to "buy the biggest house they can afford because its your biggest investment". If that's true, you're going to be eating dog food or working a minimum wage job "in retirement". A reverse mortgage, even with all its warts, at least gives you some cash and a roof over your head.