Well known radio host and author Dave Ramsey has come out strongly against reverse mortgages. The truth is, Dave only likes 15 year fixed mortgages, or preferably cash when buying a home. For the sake of full disclosure, I am a Dave Ramsey fan, having facilitated his flagship program Financial Peace University in two different churches. And, I do offer reverse mortgages to senior homeowners.
Dave is against debt. However, many wealthy people have become so because of leveraging debt on real estate, President Donald Trump being one of them. Baby boomers are the first generation that had to fund their own retirement. They survived the dot.com bust of the late 1990s and have recovered from the real estate correction and the Great Recession of 2008-9. They sent their kids to college and incurred the most student loan debt of any generation (parent plus loans).
So, they are entering their golden years with more debt than their parents did. The silent generation was taught to pay off your home and pass it on to your kids. However, only 1% of children want their parents home, as they have homes of their own. For many senior homeowners, a reverse mortgage can help them: 1. remain at home; 2. retain ownership; 3. maintain their independence and 4. increase their cash flow.
Recently someone sent me a clip about Dave ranting against reverse mortgages as a senior was being foreclosed on and going to lose their home. As I listened to this Dave says this senior didn’t pay their property taxes. Newsflash! If you don’t pay your property taxes you will ultimately lose your home to foreclosure, whether you have a mortgage, reverse mortgage or no mortgage. The county will get their money one way or another eventually.
Now in a perfect world, Dave is right. Cash is king. However, most people don’t have $200,000-$700,000 cash laying around to buy a home. Also, with all the challenges they have faced in life, and not batting .1000 when it comes to their finances, there have been mistakes made. Rather than punish people, or be their financial judge, I want to give people a break and allow them to unlock and access their home equity, tax-free. Clients have told me they sleep better at night knowing they can remain in their home and not worry about making a mortgage payment on a fixed income.
Here’s what retirement for a senior homeowner could look like.
- No mortgage payment
- Line of credit on a portion of their home equity that earns 4-6% a year compound interest guaranteed and protected from a real estate market correction
- A healthier 401k or IRA if they take the amount of their mortgage payments they are no longer making and fund their retirement account AND/OR they can buy a life insurance policy to replace any equity they may lose with a reverse mortgage, and if healthy enough add a long term care rider on it to protect their assets and leverage insurance for health care they may need
- While they continue to work, possibly to age 70, they delay taking Social Security and then at age 70 they receive the maximum benefit
This is why I wrote my book, The Swiss Army Knife of Retirement Cash Flow, to show people that a reverse mortgage is a financial tool with many uses. Why would anyone, including Dave Ramsey, be against helping a senior increase their cash flow, have more certainty and sleep better at night in their golden years?