Reverse mortgages need to be appropriate

I recently sat down with a lady whose husband was in a nursing home.  The cost of care was going to run $5000 per month (her contribution).  The reverse mortgage, or any of the other senior products that I could offer her, were going to generate about $60,000.  The reverse mortgage after paying off her mortgage, and the other products leaving the mortgage in place. 

As you can see, any of the products would last her about 30 months – 2 1/2 years.  Her husband’s life expectancy is between 5 & 7 years.  Tough situation!  The reverse mortgage added one feature that the equity share or appreciation advance did not, the fact that it also eliminated her mortgage payment, which would stretch how long her cash would last, but not by a huge amount.  The bigger benefit, is that the reverse would allow her more flexibility to stay in her home after the cash ran out, regardless of what happened with his care. 

As is normal in these situations, I meet with the customer once, explain the options, and go away for a while to let her think.  Her decision is a tough one.  Does she sell now into a declining market and take what cash she can?  Does it make sense to move to another area where costs are lower?  Does she go ahead with one of the products and buy herself some time to work on other options?

The trouble with buying time is that there are so many unknowns, and so many that cannot be known.  Where will the real estate market be?  Could she recover some of the money she “lost” as the market has declined?  Will her need for cash increase?  This could easily happen in at least two ways – the cost of the health care and general inflation.  If she buys the time will there be more or less options available in the market to help her?

Remember, reverse mortgages and other senior products should always be compared to selling, not to a “regular mortgage.  If we put her in a “low cost” regular mortgage, she could actually generate enough cash to cover her expenses for about another 6 months.  But then she would be FORCED to sell, or face foreclosure and lose everything, because she would not have the cash or the income to make the payments.

These decisions are never easy, but knowing what the options are puts the senior in the best possible position to make a good decision.