Why Suze Orman Hates Reverse Mortgages (2024)

FAQs

Why Suze Orman Hates Reverse Mortgages? ›

Another issue that Suze has with reverse mortgages is that they are not always a flexible option for homeowners. Borrowers must continue to pay property taxes, homeowners insurance, and home maintenance costs, or they risk defaulting on the loan. This can be especially challenging for older Americans on a fixed income.

Taking a loan too early

The earliest a homeowner is eligible to take out a reverse mortgage is age 62, but Orman considers it risky to do so. "If you tap all your home equity through a reverse at 62 and then at 72 you realize you can't really afford the home, you will have to sell the home," she said.

Television commercials for reverse mortgages commonly extol the benefits of a guaranteed tax-free income for homeowners aged 62 and older. However, reverse mortgages can be expensive and, in some cases, put a person's biggest asset—their home—at risk.

A big downside to reverse mortgages is the loss of home equity. Because you're not paying down your reverse mortgage balance, you'll make less profit when you sell, or limit your borrowing power if you need a new loan. You'll pay high upfront fees.

While a reverse mortgage lets you access your equity without selling your house right away, it can be financially risky: A reverse mortgage increases your debt and can use up your equity. While the amount is based on your equity, you're still borrowing the money and paying the lender a fee and interest.

Reverse mortgages are extremely expensive and should only be used as a loan of last resort. Borrowers must pay both upfront and ongoing fees. The ongoing costs are often financed into the loan and seniors may be unaware of just how quickly the fees add up.

If you're 62 and expect your current place to remain your forever home, a reverse mortgage could make sense. You need more money to manage everyday expenses – If you're struggling on a limited income, a reverse mortgage can help you keep up with some bills.

Alternatives to a reverse mortgage include home equity loan, home equity lines of credit, and cash-out refinances. These financial products can help you tap the equity in your home to use as cash for other purposes.

Cons. Higher interest rates compared to traditional mortgages and some HELOCs. Fees that could add thousands of dollars to the cost of your reverse mortgage. Exchanges long-term equity growth for short-term financial flexibility.

The problem, say advocates, is that many senior homeowners don't understand the fine print in a reverse mortgage. Some wrongly assume the lender will pay the taxes and insurance. But fall behind on those payments or fail to maintain the home, and the lender can foreclose.

What happens if you live too long on a reverse mortgage? ›

If the end of your term is up before you pass away, then you have outlived your reverse mortgage proceeds. With a term payment plan, you reach your loan's principal limit—the maximum that you can borrow—at the end of the term. After that, you won't be able to receive additional proceeds from your reverse mortgage.

The amount of money you can get from a reverse mortgage usually ranges from 40% to 60% of your home's appraised value. The older you are, the more you can receive because loan amounts are based on your age and current interest rates.

No, reverse mortgages are not scams. They are legitimate loans designed for seniors, but it's essential for borrowers to fully understand how they work. Interest accrues on the loan over time and is repaid when you leave the property.

Reverse mortgages were meant to help seniors in or nearing retirement. Because of this, the reverse mortgage age requirement is 62 or older. You must be at least 62 years old to get a reverse mortgage.