Friday, 25 June 2010
Reverse Mortgage – Part 1
Like so many elders, I lost a lot of money in the financial crash of 2008. There was not all that much to begin with, but enough to augment my Social Security benefit so that without undue effort, I could live comfortably, if frugally. Frugally compared to my working years, but not difficult. I didn't feel deprived.
A large chunk of my loss was due to the Lehman bankruptcy from which I will eventually see only pennies on those tens of thousands of dollars. And because, on the day of the crash, I put all remaining funds into a cash account at a miniscule, if not quite nonexistent, interest rate, since then I have not had the monthly earnings I had counted on to ease my old age.
Don't get me wrong. I am not in danger of needing a food pantry or government help in paying Medicare premiums. But I do live close to the bone and any out-of-the-ordinary expense – an unexpectedly high veterinary bill, for example, auto repair or a denture as I recently needed – means further reducing my savings or running up a high-interest-rate credit card debt. Neither is a comforting option.
Undoubtedly some of you – braver sorts than I – have benefited from market returns since the crash and would advise me to reinvest. I am not ready to do that. Even the word “invest” gives me a stomach ache. In an economic environment that still feels uncertain to me, I don't have enough money to take those chances again and until I can think about investing without vomiting, it is not a place for me to be.
I am telling you all this because after much reading, note-taking, thought and consideration over several months, I have decided to seek a reverse mortgage. Further, I believe it would be beneficial for many TGB readers who might want to consider this move to follow along through each step of a real-life experience as I investigate the possibilities, seek the best advice and make the necessary decisions.
One of the problems with reverse mortgages is that the business has a poor reputation and the people who deal in them feel sketchy. The television commercials and email solicitations, whose numbers are increasing, sound like fly-by-night operations and in fact, a consumer advisory brochure from the comptroller of the currency at the U.S. Department of the Treasury titled, Reverse Mortgages: Are They for You? [pdf], includes this warning:
“Be wary of anyone trying to sell you other products along with a reverse mortgage. Because a reverse mortgage can give you access to a large amount of funds, it can make you a target for aggressive sales pitches for expensive and inappropriate products and services.
“You should generally steer clear of anyone trying to sell you other products – such as annuities long-term care insurance, investment prorams, or home repair services – along with a reverse mortgage.”
Five years ago, when I had been unable to find work for a year and was looking into how I might be able to afford to remain in my home in Greenwich Village years before I had intended to retire, I looked into reverse mortgages. My research then revealed an industry fraught with potential bad guys so slick they could skin me alive before I knew what had happened. So much so, that I gave up the idea and sold my home.
He has recently written two stories on the benefits to elders of HECM reverse mortgages, a type I missed or misunderstood five years ago, but is insured by the federal government making them safe for both borrower and lender. You can read Saul's two reverse mortgage columns here and here.
If my new home in Oregon, on which there is no mortgage, is worth what I paid for it, and if the various reverse mortgage calculators around the web are correct, I could increase my income by about 40 percent. That is, if I took the mortgage as monthly payments; there are other options.
I don't need that much, but it would give me some financial breathing room and reduce anxiety about inevitable unexpected or even anticipated expenses that don't fit into the current budget.
But I'm getting ahead of myself.
The story of my search for a reverse mortgage will appear here about once a week or whenever there is enough new information for an update. I will do my best to get the people I meet along the way on the record here. I will steer you toward the best information on the web. I will do everything possible to get your questions answered.
Also, I will give you enough detail about my reverse mortgage so you understand the process – although not so much that you know everything about my financial situation. (Come on now – you're not entitled.)
One of the requirements for an HECM (FHA-guaranteed reverse mortgage) is a counseling session with a HUD-licensed reverse mortgage expert who explains all details – the upsides and down – of reverse mortgages. I've done enough reading to believe that a reverse mortgage is a good choice for me, but I am moving forward slowly and carefully, and may learn something new that changes my mind.
So we will take this critical journey together. I hope it will be useful to you in your financial decision-making.
At The Elder Storytelling Place today, Ann Berger: Jens, Our Scarecrow