Updated: Feb 25, 2020
I’ve seen a television commercial starring an antiquated, broken-down, former Hollywood actor marketing “Reverse Mortgages”. The trailer illustrates the artist walking through a lush path bordering by fresh greenery. It begins with the fill-in muttering, “Now this is not my first rodeo”. He begins to extol the virtues of reverse mortgages and why this obligation is a great idea. He mentions the reverse advance is a loan like any other, but the only difference is “the way you pay it back”. Comments like pay what you when you can, pay it all or not pay anything, and a great idea to enjoy your life with tax free dollars. The Madison Avenue strategy directed to the pensioners is to how that removing money from the home equity is easy, quick and your option to eliminate monthly payments is a great solution to enhance cash flow. The no-payment targeted option is inferred by the insurance company the simple solution to make your lifetime uncluttered and financially supported. The end of advertisement meanders through the process of providing the litany of free information, pamphlets and CD’s stamped with the actor’s face with heavily died hair and mustache. The before-mentioned TV star ending in his paraphrased words, now he wouldn’t represent the insurance company if he’d didn’t believe that reverse mortgages are fantastic. The ultimate outrage is the ending of the trailer. A full faced actor with his cheese-cake smile on his face looks into the heart and sole of the viewers tells them… and again paraphrasing…..how he trusts this insurance company and he thinks you will too.
Nobody has complaints for anyone who looks for an easy job even if it is hacking for some insurance company. People must make a living. When any of our clients seeking advice for a reverse mortgage, our office adamantly answers NO WAY!
Everything mentioned in the insurance marketing program is correct. The difference is that nobody explains or mention the negatives. Interest for reverse mortgages is not allowed as a deduction under current IRS code. No income tax reduction. Reverse mortgages accumulate principle that includes the deferred interest. Even though accumulated interest is once paid, not only is the interest deduction is unallowed, it doesn’t even become an addition to basis. Interest for the reverse obligations becomes a toilet flushing. Lastly, (and a eye-opener), Interest is COMPOUNDED. The Insurance Company fails to explain that if you neglect a payment, the consumer will begin to accrue interest on the interest! A back-breaker with your equity.
Our office suggests that a retired(s) party needs tax free money and needs to borrow on their home equity, a better avenue is to procure a loan and deed of trust or line of credit. Insure that the monthly loan obligation is satisfied by an amount or less that the monthly social security pension. This way, the retired will re-accumulate equity for themselves or their estate. The interest is not a deduction unless the client uses the tax free loan for improvements for the home or for investment purposes.