Should I Consider a Reverse Mortgage?Housing
There are certain things in life that create nostalgic feelings for us. Spending time in the summer heat, the smell of an old book, or watching a favorite movie, are all ways we can experience a bit of the past in the present. Tom Selleck is one of those familiar faces that brings back memories for those coming of age in the ‘70s. As that generation reaches their golden years, AAG has used the nostalgia of days gone by to encourage seniors to explore reverse mortgages as a solution to their financial woes in retirement. Tom has always been an easy character to trust so when he promises, “I wouldn’t be here if I thought reverse mortgages took advantage of any American senior,” it’s hard not to trust him. While utilizing Tom is a very creative and effective marketing strategy, it does not negate the nuances and possible financial dangers associated with this type of loan. Though these loans now have many regulations in place to prevent poor practices from taking advantage of borrowers, without proper guidance, it could be the downfall of your finances in retirement.
For example –
When her husband passed away, Lydia was left financially damaged due to her lack of financial know-how and an abundance of unpaid bills. The stress of making sure everything was covered overwhelmed her, and when she saw a commercial advertising a reverse mortgage, she jumped at the chance for financial relief. Her home had over $300,000 in equity that this mortgage could allow her to access. Better still, it wouldn’t have to be repaid until she moved, or she passed away and her kids sold the house to pay the loan. This felt like a gift - this extra money allowed her to have plenty of cash on hand for anything that could come up - or so she thought.
A few years into the agreement, Lydia contracted pneumonia and was admitted to the hospital for treatment. She was in the hospital for a few months, as she needed help breathing and couldn’t take the equipment home with her. Her reverse mortgage lender received word that she was not actively living in the home, and after 60 days of being unoccupied, the lender could reclaim the loan on the basis that she had moved. From her hospital room, she was forced to negotiate with the lender to keep her house. They agreed that if she returned within a month and the property was properly maintained in her absence, she would not have to repay the loan early. With the help of her children, she was able to keep her home, but it became increasingly apparent that the terms of her reverse mortgage were adding to her stress and navigating the legal stipulations was more than she could handle.
The desire for the financial freedom she thought she would gain with the reverse mortgage caused her to act more quickly than was prudent. Not only would a reputable financial advisor have helped her to see all the potential downsides to the reverse mortgage, but they would have suggested alternatives better suited for her situation. Whether you’re trying to navigate the terms of a reverse mortgage or researching all your income options, we recommend reviewing these decisions with a financial advisor to determine what the next best step.
GW Financial, Inc. is a fee-only firm and offers a complimentary Getting Acquainted Call to help set you on the right path. Click HERE to schedule a 30-min personal check-in.