The US is a country where 90% of people over 65 have a home that they own but have an insufficient pension that prevents them from leading a life similar to the one they had before their retirement. For people who are going through this situation, banks have created financial mechanisms that allow them to obtain resources without the need to part with any asset.
The intention is that older adults can better their consumption capacity through their goods, which is why they have a financial instrument known as a reverse mortgage. We will be discussing an overview of the reverse mortgage in this post, but you can read more about the pros and cons of reverse mortgage here.
Reverse Mortgage Financial Instrument With Too Many Gaps
Why has the reverse mortgage not been receptive?
There are factors that according to some economic analysts and sociologists influence the low acceptance that reverse mortgages have had, these are:
Little publicity and propaganda by banks:
Currently for banks, offering the reverse mortgage is a situation of uncertainty since the return on capital is directly related to the duration of the person’s life. On the other hand, when the owner dies, the bank continues to maintain uncertainty since it does not know what the decision could be made by the heirs, which can range from the constitution of a new mortgage to the payment of the existing one. Also, if for some reason, the real estate market suffered a rise and the property increased in value in consideration of the reverse mortgage, the bank would be in a situation of loss if the heirs decide to sell the property or keep it.
Since this product is aimed exclusively at the elderly, they, due to a matter of idiosyncrasy, cannot mortgage the family heritage since they would leave without an asset that their children could have in the future. Even according to some studies, there are elderly who live an extremely precarious life with many limitations and they prefer to be that way than to take on a reverse mortgage.
Reverse Mortgage And Its Future
Interesting Related Article: “Common Mortgage Issues People Have Trouble Handling“