Don’t explore those options!

Reverse mortgage professionals are well familiar with Dave Ramsey’s dim view of reverse mortgages. When Dina, a caller to The Ramsey Show said she and her husband have no heirs and were considering a reverse mortgage Ramsey and his cohost reacted dramatically as if she said she was planning to light her hair on fire. 

“We don’t have any heirs. Can I do a reverse mortgage?”, said Dina. 

“What are you saying?!” replied co-host Jade Warshaw. “Where is that woman who called and said she listened to the show? What did you do with her?” Ramsey quipped. 

A recent Yahoo Finance column recounts how the call to one of America’s most popular financial talk shows played out. “Quit entertaining these crazy-butt ideas”, said Ramsey. 

Dina is a 59-year-old teacher who mere months from retirement was looking into options to finance much-needed renovations on their home stated that she and her husband were considering a HELOC or a reverse mortgage. 

Their reported combined annual household income is $158,000. Dina says she could pay off the mortgage by August with her projected savings and a $28,000 tax-sheltered annuity. 

“I’m exploring options”, Dina said. “Don’t explore those”, replied co-host Warshaw. 

Don’t explore options? Why not? Because Dave doesn’t like reverse mortgages? 

What’s unknown is how much household income they will receive after Dina retires or if her husband’s income will remain the same. What we do know is Ramsey tends to paint with broad brush strokes giving advice that may not consider the unique circumstances of each caller.

Here are some questions Dina may want to weigh on how to pay for her home renovations.

What are the tax consequences of cashing out the tax-sheltered annuity?

Would spending down savings to finance renovations leave them forced to cash out other financial accounts that could lead to penalties?

Having no heirs what’s the advantage of leaving a home that’s paid off?

How much cash flow is preserved by either paying off the mortgage balance or refinancing into a reverse mortgage?

Does Dave Ramsey understand that unlike a HELOC a Home Equity Conversion Mortgage’s ‘line of credit’ cannot be frozen or reduced should home values drop?

With an annual household income of $158,000 and unable to pay cash for repairs and renovations, what other debts make self-funding the project unrealistic? 

What are the opportunity costs of not considering a reverse mortgage?

A reverse mortgage may not be their best option, or it could provide the flexibility for Dina and her husband to further safeguard or enhance their retirement. 

The point is if an advisor makes the blanket statement to ‘not consider other options’ the client may want to consider advice from another financial professional.

By Shannon Hicks Feb 27th 2024