What Does Suze Orman Say About Reverse Mortgages?

Suze Orman, a well-known financial expert, offers advice across various media platforms. A reverse mortgage is a loan for homeowners, typically aged 62 or older, allowing them to convert a portion of their home equity into cash. Unlike a traditional mortgage where the borrower makes regular payments, a reverse mortgage involves the lender making payments to the homeowner. The loan becomes due when the borrower sells the home, moves out permanently, or passes away.

Suze Orman’s Overall View

Suze Orman approaches reverse mortgages with caution and practicality. While acknowledging them as a legitimate financial tool, she consistently advises they be considered a last resort. Her perspective emphasizes understanding the implications before committing. She believes these loans, while providing immediate cash flow, often have significant long-term financial impacts that borrowers may not fully comprehend. Orman’s advice underscores the need for seniors to exhaust other financial options before using their home equity through a reverse mortgage.

Key Concerns She Highlights

Orman frequently highlights several drawbacks of reverse mortgages, particularly the costs. Borrowers are required to pay various upfront fees, including origination fees, mortgage insurance premiums, and closing costs. These expenses can quickly accumulate, reducing the equity available and diminishing the program’s benefit. Interest accrues on the loan balance over time, increasing the total debt and eroding the home’s equity, which can lead to a reduction in the equity passed to heirs.

Another concern Orman raises is the risk of foreclosure. Homeowners remain responsible for ongoing property charges, including property taxes, homeowners insurance, and home maintenance costs. Failure to meet these obligations can result in default, leading to the loss of the home. This risk is especially pertinent for seniors on fixed incomes who might struggle to cover these expenses. She also highlights the complexity of loan terms, noting that many borrowers may not fully understand the intricate conditions, variable interest rates, and repayment obligations, which can jeopardize their financial stability.

Specific Conditions for Consideration

Suze Orman suggests a reverse mortgage might be an option only under very specific and limited circumstances, primarily as a financial last resort. This typically arises when a homeowner has exhausted all other financial avenues and needs funds to remain in their home. She advises against taking out a reverse mortgage early in retirement, such as at the minimum age of 62, because it could deplete home equity too soon, leaving no resources for later needs. The decision should align with a clear financial plan, ensuring the reverse mortgage provides necessary funds without jeopardizing long-term stability or the home’s equity.

If a reverse mortgage is considered, the homeowner must fully grasp all terms, costs, and ongoing responsibilities. This includes understanding how interest accrues, the impact on heirs, and the continued obligation to pay property taxes and insurance. She advises that borrowers should not take out more money than absolutely necessary, as borrowing conservatively helps minimize future costs and preserves more equity.

Alternative Strategies She Recommends

Before considering a reverse mortgage, Suze Orman consistently advocates for exploring several alternative financial strategies. One suggestion is downsizing to a smaller, more affordable home. This approach can reduce housing costs significantly and often provides a homeowner with extra cash from the sale of their larger property. Downsizing allows individuals to access their home equity without incurring the specific costs and complexities associated with a reverse mortgage.

Orman also suggests exploring other forms of home equity access, such as a home equity line of credit (HELOC) or a home equity loan. While these options require monthly payments, they typically feature lower interest rates and offer greater flexibility by allowing borrowers to access only the funds they need. She encourages seniors to access their existing retirement savings or other investment accounts if possible. Additionally, Orman advises looking into government assistance programs or community resources that might provide financial support without leveraging home equity.