What Suze Orman Says About Reverse Mortgages

Suze Orman, a well-known financial expert, consistently provides guidance on personal finance, including reverse mortgages. This article summarizes her specific views and advice regarding these financial products. Her perspective offers insights for homeowners considering how to leverage their home equity in retirement planning.

Suze Orman’s Overall Stance

Suze Orman generally approaches reverse mortgages with significant caution. Her stance prioritizes preserving home equity and avoiding unnecessary debt, considering home equity a foundational asset for seniors’ financial security. She often advises against using a reverse mortgage as a primary solution for retirement income. Instead, her guidance suggests that tapping into home equity through this method should be a carefully considered action.

She views reverse mortgages as a financial tool that can potentially deplete a homeowner’s most significant asset over time. Her advice emphasizes exploring various options before committing to an arrangement that could impact long-term financial flexibility.

Situations Where Suze Orman Advises Caution

Suze Orman frequently highlights several specific concerns that lead her to advise caution regarding reverse mortgages. She points out that these loans can be expensive, often involving substantial upfront costs. These include origination fees, which can be a percentage of the home’s value, and mortgage insurance premiums (MIP), which are typically charged both upfront and annually. Such fees can significantly diminish the amount of available equity from the start.

Another significant warning from Orman concerns the impact on heirs. As the loan balance accrues interest over time, it can substantially reduce the equity remaining in the home. This means that upon the homeowner’s passing or sale of the property, the inheritance left to heirs may be significantly smaller or even non-existent. The loan, including accumulated interest, must be repaid, which often necessitates selling the home.

Orman also warns about the risk of foreclosure, despite the absence of monthly mortgage payments. Borrowers remain responsible for property taxes, homeowners insurance, and home maintenance costs. Failure to meet these ongoing obligations can result in the loan becoming due and payable, potentially leading to foreclosure and the loss of the home. She emphasizes that the complex terms and conditions of reverse mortgages may not be fully understood by borrowers.

Suze Orman’s Conditions for Consideration

While generally cautious, Suze Orman acknowledges very specific, limited circumstances where a reverse mortgage might be a viable option. She consistently frames it as a “last resort” solution, to be considered only after exhausting all other financial alternatives. This means exploring options like selling other assets, seeking government assistance, or re-evaluating retirement savings before turning to a reverse mortgage.

Orman suggests that it could be considered in situations of extreme financial hardship where no other income sources are available to meet essential living expenses. For example, if a homeowner faces a severe liquidity crisis and needs funds to remain in their home, and other avenues have been exhausted, a reverse mortgage might offer a temporary financial lifeline. She has also indicated that delaying Social Security benefits and using a reverse mortgage as a temporary income source could be a strategic move to maximize Social Security payments later in retirement.

Even in such scenarios, Orman stresses the importance of fully understanding the loan’s costs and implications, especially how interest rates can affect the amount of funds received and the long-term financial impact.

Suze Orman’s Recommended Alternatives

Suze Orman consistently recommends exploring several financial strategies before considering a reverse mortgage. A primary alternative she suggests is downsizing to a smaller, more affordable home. Selling a larger, more expensive property and moving into a less costly residence can free up significant capital, and reduce ongoing housing expenses like property taxes and utilities.

Another option she frequently advocates is exploring a home equity line of credit (HELOC) or a traditional home equity loan. While these options require monthly payments, they typically offer lower interest rates than reverse mortgages and allow homeowners to borrow only what they need. This provides access to home equity while retaining more control over the loan balance and avoiding the compounding interest that characterizes reverse mortgages.

Orman also advises considering ways to access existing retirement savings or other investment accounts. Utilizing funds from 401(k)s or IRAs, carefully managing withdrawals, or even exploring part-time work, can provide necessary income. Additionally, she suggests investigating government programs or community resources designed to assist seniors with financial needs.