Ramsey Everyday Millionaires - Why Should I NOT Get A Reverse Mortgage?

Short Summary

Main recommendation: Do not get a reverse mortgage; instead, pay off the house and save money so you can live well later. The speakers argue that reverse mortgages are costly and risky, and that the sales pitch leaves out the downsides, especially for a spouse who inherits the home.

Key Points

• Reverse mortgage interest rates are described as almost double the rate of a traditional mortgage.
• Closing fees on a reverse mortgage are described as more than double those of a traditional mortgage.
• Foreclosure rates on reverse mortgages are described as roughly ten times the national average for traditional mortgages.
• Borrowers can only draw up to 65 percent of their equity (65 percent loan-to-value), and must keep paying property taxes, insurance, and maintenance even after the money runs out, or risk foreclosure.
• The speakers say a surviving spouse may have to pay off the full balance with interest, or give up the home, if the borrower dies before the house is sold, and that some loans have call provisions.

Details Worth Noting

• Concrete instructions: Pay off the house first. Then save money so you can live comfortably later. Before considering any reverse mortgage, check the interest rate, closing fees, the 65 percent loan-to-value limit, and the ongoing obligations for property taxes, insurance, and maintenance, and confirm whether the loan has call provisions and whether a spouse would have to repay the full balance.
• The speaker from Missouri asked about getting a reverse mortgage at age 57 with a 32-year-old wife, planning to enjoy the money, assuming he lives another 20 years before she inherits the home.
• The hosts describe reverse mortgages as "a filthy business" and say the products are designed against older borrowers, whom they call the target demographic.
• The hosts point to late-night cable advertising alongside products like Snuggies and walk-in bathtubs as a reason to be skeptical, and mention an $800 million fine against a company whose spokesperson (referred to as 'Tom') endorsed such products.
• The hosts' views are their own commentary on reverse mortgages and are not professional financial advice.

Bottom Line

For most people in this situation, the hosts' view is that the costs, risks, and aggressive marketing of reverse mortgages outweigh the cash they provide, so paying off the home and building savings is the safer path.