Dave Ramsey has a major warning for Americans relying on this ‘predatory’ type of mortgage

With the cost of healthcare, food, and basic amenities rising, U.S. homeowners, especially those reaching their retirement age, are looking for options to ensure financial stability. One of those is a reverse mortgage, which can fund their retirement with regular payments. However, personal finance expert and best-selling author Dave Ramsey has a word of caution for those considering this option.

“Thinking of getting a reverse mortgage? Bad idea. Reverse mortgages sound like a good plan — after all, who wouldn’t want a dream retirement funded entirely by their house! But here’s the truth: Reverse mortgages are major rip-offs," Ramsey wrote in his blog.

He explained that reverse mortgages are only available to homeowners aged 62 or above who have paid off a major chunk of their home's existing mortgage loan. He added that, similar to a second mortgage, a reverse mortgage allows homeowners to access the value of their home, apart from what they still owe, to get either a lump sum, a line of credit, or fixed monthly payments from a lender. According to the National Consumer Law Center (NCLC), about 480,000 Americans have outstanding reverse mortgages across the nation. 

While the program is designed to help old homeowners borrow money, Ramsey calls them "predatory." He explained that, like a traditional mortgage, people who take out a reverse mortgage put up their house as collateral for the loan. "Can we talk for a second about how risky that is? Why in the world would you want to risk losing your home—the most valuable thing you own—in your senior years? And talk about stress! Try getting a good night’s sleep when the future of your home is up in the air," he wrote.

According to Ramsey, there are only two pros of reverse mortgages. The first is that the borrower gets some cash to pay for their expenses and desires, and the second is that there are no monthly payments to make. "You won’t owe the mortgage company a dime until you move, sell your house, or die," he added. However, Ramsey mentioned a lot of drawbacks of reverse mortgages. "But let’s not act like that cash is falling out of the sky. It’s not a gift, it’s a loan. By definition, that means a reverse mortgage is debt. And you may not have to pay it back right away, but someone will eventually—and that someone could be one of your family members after you die," he wrote. He reiterated that borrowers could lose their homes, and on top of that, these programs come with tons of fees, extra costs, insurance premiums, closing costs, and servicing fees. "Are you getting the picture? These suckers flat-out stink!" Ramsey expressed.

He further explained that borrowers may end up owing more than their home's value despite the lender's advertising the program otherwise. "Is that really the sort of situation you want to leave your family in when you die? Is that what you want your legacy to be? We’ll answer that for you: Heck no!" Ramsey warned. Coming to the alternatives, Ramsey suggested getting a job, maxing out retirement plans like a 401(k), and making early investments for retirement. He even suggested that readers sell their home and downsize, instead of getting a reverse mortgage.

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