What Does Suze Orman Say About Reverse Mortgages?

Suze Orman, a recognized financial expert, consistently guides individuals on personal finances. Her insights often prompt public inquiry into her stance on complex financial products. Among these, reverse mortgages frequently surface as a topic of discussion. This article aims to clarify her views and recommendations.

Suze Orman’s General Position

Suze Orman generally approaches reverse mortgages with considerable caution, often advising against them for most homeowners. Her philosophy centers on preserving home equity, viewing it as a fundamental asset for financial security in retirement. She believes that tapping into this equity through debt should be a carefully considered decision, not a primary financial strategy.

She has consistently articulated her concerns about these loans, stemming from a commitment to help individuals make informed financial choices. Her advice underscores the importance of maintaining control over one’s assets and avoiding unnecessary financial encumbrances. This overarching stance positions reverse mortgages as a measure to be explored only after exhausting other, less impactful financial avenues.

Specific Scenarios for Consideration

Despite her general skepticism, Suze Orman acknowledges a very limited set of circumstances where a reverse mortgage might be a viable, albeit last-resort, option. She suggests considering such a loan only after all other financial alternatives have been thoroughly investigated and exhausted. This typically applies to situations of dire financial hardship where a homeowner needs income to remain in their residence.

One specific instance she cited involved an individual facing capital gains taxes from liquidating investment portfolios to cover living expenses. In such a unique scenario, a reverse mortgage might offer a way to preserve other assets, allowing them more time to potentially recover value. The decision would also be less complicated if there were no heirs for whom to preserve the home’s equity.

Her Primary Concerns

Orman’s primary concerns include the substantial costs associated with these loans: origination fees, mortgage insurance premiums, and closing costs. These can significantly reduce available home equity and diminish the financial benefit for the homeowner.

Another worry is the impact on heirs, as the loan balance and accrued interest must be repaid upon the homeowner’s departure or passing, potentially reducing inheritance. Orman also highlights the complexity of reverse mortgage terms, stressing that borrowers may not fully understand intricacies like variable interest rates or repayment obligations.

Homeowners remain responsible for property taxes, homeowner’s insurance, and home maintenance. Failure to meet these ongoing obligations can result in loan default and the risk of foreclosure. She also warns against taking out a loan too early, such as at age 62, as it could deplete equity prematurely.

Alternative Strategies She Suggests

Before considering a reverse mortgage, Suze Orman advises exploring several alternative financial strategies she deems more favorable:

• Downsizing to a smaller, more affordable home is a common recommendation, as it can reduce housing costs and free up capital.
• She also stresses the importance of having a robust emergency fund, ideally covering at least eight months of living expenses, to act as a financial safety net.
• While generally cautious about using home equity for spending, Orman suggests that a traditional home equity loan or a home equity line of credit (HELOC) might be preferable to a reverse mortgage in specific situations, such as a true emergency. However, she strongly warns against using these for non-essential “wants” like vacations or luxury items, as the home serves as collateral. She also advises against variable interest rates on HELOCs, noting that rising rates can make payments unaffordable.
• Other recommendations include exploring ways to increase income, such as renting out a spare room.
• Prioritizing retirement savings through accounts like 401(k)s and IRAs to build long-term financial security.