Where this was said
Frank in Baltimore: Should I Use a Reverse Mortgage Before Retirement?
At 1:24:33 · chapter starts 1:16:35
Frank in Baltimore has been advised by someone to take out a reverse mortgage on his paid-down home and put those payments into a high-yield savings account to build retirement funds. Dave immediately identifies the flaw: reverse mortgage interest rates are higher than high-yield savings rates, so the trade loses money. [1] — Dave Ramsey "Reverse mortgage interest rates are higher than high-yield savings rates, so the arbitrage pitch you heard doesn't work. Beyond that, forec…" 1:21:05 Beyond that, foreclosure rates on reverse-mortgaged homes are five times higher than on conventional mortgages, and the fees are excessive. Frank has a partial police pension of roughly $1,600–1,800/month, Social Security of $2,500–3,200 depending on when he takes it, $40K in deferred comp, and some jewelry. He also still owes $130K on the house and $23.5K on a truck. With six years until retirement, Dave tells him to pay off the truck, pay off the credit cards, and live on the pension and Social Security. He'll have more than enough — and Dave closes with the beautiful suggestion that Frank consider leaving his house to a young couple as a generosity legacy.
Real estate flipping isn't what you see on TV. To make money, you buy at 70% of value minus repair costs — because by the time you pay commission and closing costs, you'll net about 88 cents on the dollar at sale. Miss the buy price and you turn your money into less money. The profit is made at purchase, not renovation.
Dave explained that profitable house flips require buying at 70% of value minus repair costs, because selling costs eat roughly 12% of fair market value.
Reverse mortgage interest rates are higher than high-yield savings rates, so the arbitrage pitch you heard doesn't work. Beyond that, foreclosure rates on reverse mortgages are five times higher than on regular mortgages. If you have debt before retirement, pay it off — don't add more complexity with a high-fee product.
Dave stated that the foreclosure rate on homes with reverse mortgages is five times higher than on regular mortgages.
