AUTHORS OF OUR OWN MISFORTUNES?

More than twenty years ago I wrote and voiced a commercial for a new way to raise money: “reverse mortgages.” I did it for an insurance agency that was offering these panaceas for older people in financial straights.

Since that time the reverse mortgage business has thrived. The latest TV commercials tell us that there are now lower rates, thanks to a major insurance company.
The commercials tell us that if you are over age 62 you can access “as much as” 40% of the value of your home. Sounds good. Then tell you: “You continue to live in your house until you either leave or sell.” Still sounds good. But, and this is advice to fellow seniors, there is no Santa Claus. There is an American TV commercial featuring a failed Republican presidential candidate (and sometimes actor) Senator Fred Thompson. He actually tells viewers that he is proud to be part of this program.

I have always wondered why people who are at or nearing retirement age, and may have become empty nesters, decide that a four bedroom house for two people in foolish. So what do so many of them do? They continue the foolishness: They sell their home and re-invest the proceeds in something else, usually a condominium. They jump, if not from the frying pan into the fire, from one frying pan to another. Nothing seems to change. True, if you timed it well, you sold your home at a profit and promptly paid too much for a trouble-free condominium. The only answer to this decision seems to be that it is somehow better to own than rent and that owning represents an investment. At your age why would you want to make that kind of investment? It’s like taking your money and putting it into the stock market in common equities that do not produce revenue (or produce very little) and have the possibility of increasing or decreasing in value.

The choice to jump from one frying pan to another seems to be right up there with staying in a home you no longer need and financing that stay with a reverse mortgage. In all the ads I’ve seen, there is no discussion about the downside – of course. You get the money yes. But your home is encumbered with a mortgage. You make no payments of course, but someone has to be paying. Indirectly it is you. The lending company which holds the mortgage will be making regular payments to itself, at least on paper. Those payments will of course be added to the existing reverse mortgage on your home.

Now, you decide to sell the house. Whoops. It is encumbered not only with a mortgage, but with the paper payments that have to be made at what the company says are “lower interest rates.” The net value of your home is diminished.

The other situation: you decide to move, perhaps into an assisted living home. The mortgage on the home, and accrued interest become payable. You will be lucky to have anything left.

When my wife and I finally decided that it was folly to keep our house, which was a money pit and the money supply had seriously diminished, we sold. Guess what. The obligations outstanding, between our mortgage and the liability on our line of credit amounted to about 40% of the value of the house! We got out with 60% of the value, invested it, and live comfortably in a downtown condominium where we rent a spacious 2 bedroom apartment. We live with just as much comfort and security as the people who live in their home encumbered with a “reverse mortgage” except that we are free and clear. We owe nothing.

While I’m on the subject, I have come to believe that home ownership is greatly overrated. It is embedded in our psyche. People who say: “I don’t want to pay rent and have nothing to show for it,” opt instead to be mortgage poor. You are still paying rent. The difference is that instead of renting a place to live you are renting the money that appears on your mortgage.

Never mind what I say – I’m not really qualified. Go talk to your accountant.
I did write "Don't Be Blind=sided by Retirement," but at the time I wasn't so steamed up about the reverse mortgage.