What Everybody Ought to Know About Reverse Mortgages

Financial calamities have been perpetuated upon citizens all over the world for most of history. There was the tulip frenzy in Holland in 1637, the United States bank panic of 1907. The Great Depression of 1929 required ten years before the economy rebounded.

Recently there have been such debacles as Lehmann Bros, Merrill Lynch, Countrywide Financial as well Bernie Maddoff, and then the Great Housing Bubble followed by the Great Recession of 2008 which has very long legs still stretching out as of September 2012.

The next slowly looming calamity is in the form of a reverse mortgage. This form of borrowing against the equity in your home is being blasted at us in the print, electronic and televised media. Coming soon to your smart phone?

The “reverse” part means that you get a monthly payment from the lender which you have to repay in usually ten years.  If you do not have the funds to repay the loan, you either have to sell your home or seek a refinancing option.

We are confronted on television by tired old actors and politicians hawking the benefits of this financial product. Henry Winkler (the Fonz, from Happy Days), Fred Thompson (retired actor and politician) and Robert Wagner ( from Hart to Hart and other less memorable endeavors) are the culprits. This must be an example of the Mayan “End of Days” prophesy.

The reason for the big press is that reverse mortgages are exceptionally profitable for the lender. For example, fees for an average conventional mortgage will be about $2,900 but the fees and insurance premiums on a reverse mortgage will be about $8,000 to $12,000. A home equity loan is a much better option. There may be situations which justify a reverse mortgage but it is difficult to conceive such a case which actually benefits the homeowner.

Mortgages and real estate markets are complex and market conditions are always in flux. 


The study of real estate finance at the University of Illinois Chicago prepares individuals to make informed personal and business real estate decisions. Interested in learning more about UIC's Master of Arts in Real Estate program? Come to our info session this Saturday to learn more! Register here to save your spot:  http://bit.ly/RzY0st