This was the title of a recent article by Jack Guttentag, the self-styled Mortgage Professor. And when the Mortgage Professor Speaks, people listen; his column has been reverberating around the blogosphere for over a month, and now it’s my turn to weigh in.

The crux of Mr. Guttentag’s argument is that there is nothing to compare reverse mortgages to, so it’s ultimately impossible to determine whether they are too cheap or too expensive. Still, he points out that the closing costs seem reasonable compared to other mortgage products, and that the most expensive component is the FHA mortgage insurance premium which is necessary to keep the program financially viable. Guttentag concludes by arguing that on a short-term basis, reverse mortgages are hardly economical, but on a long-term basis, the upfront costs can be rationalized, and at prevailing rates, the current APR is a modest 5%.

In my opinion, this final conclusion is really the only one that actually stands up. Even without doing the math, it’s obvious that any mortgage (conventional or reverse) is not cost-effective if you intend to repay it within a few years of obtaining it. And generally speaking, the longer you hold it, the more economical it is. This is not in dispute.

The Mortgage Professor’s first two points, however, are a bit more dubious. Beginning with FHA insurance premium, this IS both expensive on an upfront (~$4,000) and annual (~$300) basis. Because reverse mortgages are inherently risky from a lender standpoint, the practice of insuring them makes perfect sense. Just because it’s necessary, however, doesn’t mean it shouldn’t be a consideration when analyzing the costs of a reverse mortgage. If you obtain a reverse mortgage, it needs to be paid, but if you don’t obtain one, then of course you don’t need reverse mortgage insurance. This might sound like a tautology, but it’s still a point worth making.

Finally, since there is no product comparable to an HECM reverse mortgage, it’s true that it’s impossible to say whether it’s cheap relative to other reverse mortgages. Still, we can say with near certainty that it’s probably going to be cheaper than any other alternative that doesn’t involve an institutional lender. Borrow money from friends? Cheaper. Sell your current home and buy a smaller one? That’s cheaper, too. Save money by simplifying your lifestyle? Definitely cheaper. Ask your heirs (especially if they want you to keep the home) if they can lend you money using the same structure as a reverse mortgage? Probably cheaper, too.

If you still want to obtain a negatively amortizing home equity loan with high upfront costs and pay interest on interest (aka a reverse mortgage), know that it will be cheaper than borrowing money with your credit card. Compared to almost anything else, however, it will cost you more.