This 4 part blog reports on America’s indebtedness to the government from cradle to grave. Whether you are a young adult that attended college, an individual who needs health insurance, an American family that bought a home or a Senior Citizen you are probably being swindled by the government when it comes to your financial security.
Part four will examine Reverse Mortgages for Seniors. Television is littered with advertisements touting reverse mortgages. They use trusted individuals to tell us what a great program this is for seniors. They used the late Fred Thompson, from Law & Order fame and now they are using Magnum PI, Tom Selleck. Hell, Fred Thompson was actually an elected government official and a paid pitchman for reverse mortgages.
It is true that you can generate a monthly payment using the equity in your home but at what cost? The basic workings of reverse mortgages are if your mortgage is paid in full, you can have the equity in your home converted to a monthly payment to to increase your income in retirement. You can remain in the home for the rest of your life and in the end, your heirs must repay the balance or they will lose the home. If you and your spouse/partner are co-owners and co-borrowers, a surviving spouse may continue to live in the home after the death of an owner.
If you own a home and marry later in life or remarry your reverse, the mortgage repayment is due when you die. For example, if you are a single woman who is 64 years old and decide to take out a reverse mortgage on your home, your home will go to your heirs when you die after they pay back the amount of the reverse mortgage. A few years later, you meet someone and decide to marry. In this example, let’s say the woman lives to be 80 years old and then passes away. If the person she married outlives her, the spouse will not be able to live in the home after she dies. Her heirs will inherit the property and have the choice to pay off the loan or sell it in order pay off the reverse mortgage. The spouse now has no place to live and is probably at an advanced age.
A reverse mortgage is just a fancy term for taking out a loan on your home. It will need to be repaid by either you, your spouse/partner, your children or other heirs. The only difference between this and a traditional home loan is that you get a cash payment rather than making a house payment. Remember, the home must be paid off before a reverse mortgage will be offered. If your mortgage is not paid in full, the lenders will still make a reverse mortgage, however, they will “loan” you the money to pay off the mortgage first and your monthly payment will be less.
Another pitfall with these mortgages are the you will find it difficult to obtain any other kind of credit. I had a friend who needed a new central air conditioner during a time when temperatures were soaring above 115 degrees. He contacted several air conditioning vendors and wanted to finance the purchase. He was turned down by everyone due to the reverse mortgage. My friend ended up borrowing the money from a family member to get a new compressor in his air conditioner. This repair will fix the problem but at some point my friend will still need to get a new unit and still be unable to finance the purchase.
Reverse mortgages are the biggest rip off for seniors and the government approving this kind of arrangement is horrible. These types of loans are guaranteed by the government. The banks get paid if the loan is defaulted and they end up with an asset to resell.
No one should ever borrow on their home if they cannot afford to pay it back. No one, especially seniors, should be tricked into taking a loan out that could cost them, their spouse or other heirs their home.
The lesson to be learned here is always seek advice from a CPA or tax advisor before take out a reverse mortgage. There are many options and circumstances to evaluate before you sign on the dotted line. Since your home is one of your most valuable assets, always question everything. Stan Mroz, CPA is a full service firm offering accounting, bookkeeping, tax and consultation services. We have affordable rates to fit most any budget.