Rethinking Reverse Mortgages

Sounds great. Should you consider one? Yes, but only if you're the person these products were originally created for -- an elderly person with no other assets who wants to die in his house.

"Generally we don't think they're appropriate for most people," says Michael Anderson, vice president of panning at Evensky & Katz in Coral Gables, Fla. "They're a last-resort type option."

That's because the fees are huge, the interest rates can be very high, you don't get nearly as much money as you'd expect, and your heirs may end up with nothing.

Granted, in times of desperation, these products work perfectly. If an elderly person needs the money to live, then who cares about the heirs' inheritance or the fees? The reverse mortgage will help them survive.

But for the rest of us who have savings, IRAs, 401(k)s and investment accounts, reverse mortgages should be your absolutely very last resort.

Dispelling the Unknowns

You have to be at least 62, fully own your home and live there as your primary residence to even qualify for most reverse mortgages.

Then you have three options. First, single-purpose reverse mortgages are offered by some state and local government agencies and nonprofit organizations but are generally used only for home repairs, improvements, or to pay property taxes. Next you have federally insured reverse mortgages, aka Home Equity Conversion Mortgages, or HECMs, which are backed by the U. S. Department of Housing and Urban Development, or HUD.

And finally, there are proprietary reverse mortgages available, which are private loans that are backed by the companies that develop them, a la the ones from Financial Freedom and Mr. Garner.

Granted, you must sit with a counselor who's supposed to discuss the intricacies of these products with you before you dive in. Unfortunately, there are still too many unknowns out there.