Wednesday, August 15 , 2018, 4:47 am | Fair 65º


Letter to the Editor: The Dangers of Reverse Annuity Mortgages

Reverse annuity mortgages that allow seniors to take cash out of their homes and not make any payments during their lifetime are currently being highly promoted through television, the Internet and other advertising. What a beautiful pitch — take cash out of your home up to 90 percent of its value and never have to pay it back. No restriction on the use of the funds at all. If it sounds too good to be true, it is.

The reason these loans are so highly marketed is because the commission and fees on these loans are huge! Mortgage brokers and lenders make way more money on these loans than traditional conventional financing.

Does anyone think an insurance company or lender would offer and highly promote a product unless it was going to make them a pile of money?

If a senior homeowner is not interested in leaving an estate with value to their children, perhaps not a bad idea. However, there is a better way, but it requires family planning.

Many seniors qualify for conventional financing and don’t need a RAM to get the cash that they need. Conventional financing offers much better terms, lower costs and an option to get cash out. If the senior homeowner doesn’t qualify, this is where their children might be able to help out in order to get the loan.

My suggestion is that before someone enters into a RAM they should consider consulting with a CPA or CFP to see what other options might be available. With some careful planning, the senior homeowner gets what they need and the family house is preserved and can be passed on to the children or grandchildren. 

It is my opinion that many senior homeowners that obtain RAMs are victims of a form of elder abuse because there is no way they can understand this very complicated transaction and its ramifications. 

Stephen Wheeler, CPA and mortgage broker
Santa Barbara

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