Forbes: These Stigmas Give Reverse Mortgages a Bad Reputation

In the reverse mortgage industry, there is a widely held belief that Home Equity Conversion Mortgages suffer from a bad reputation, one that is largely characterized by a gross misunderstanding of the product by the general public as well as financial professionals.

But just why do reverse mortgages have such a bad rep? There reality is there are several stigmas preventing many people from seriously considering reverse mortgages as a practical retirement tool, according to a recent Forbes article.

“Some aspects of that bad reputation are based on misunderstandings, some aspects were true in the past but have since been mitigated, and some aspects may still remain,” writes frequent Forbes contributor, Wade Pfau, director of retirement research at McLean Asset Management in McLean, Va., and professor of retirement income at The American College in Bryn Mawr, Pa.

Although recent research published since 2012 has been generating more interest from financial planners, Pfau included, reverse mortgages still retain a bad rep with much of the general public and significant portions of the financial services industry, he writes.

Part of reason reverse mortgages have developed a bad rep, Pfau suggests, is because of the temptation they provide to more quickly deplete a person’s asset base, thus creating financial hardships later in retirement.

While some of the major stigmas regarding reverse mortgages are the result of this idea of spending down assets too quickly, family misunderstandings, issues with non-borrowing spouses and misconceptions about what happens to the borrower’s home title, others are more complex on a psychological level.

“Psychologically, individuals may be challenged by the idea of using a debt instrument in retirement after having spent their careers working to reduce their debt,” Pfau writes. “This is a psychological constraint against using reverse mortgages.”

Read more about the other stigmas plaguing reverse mortgages at Forbes.

Written by Jason Oliva

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