Saturday, March 29, 2014

Senior disadvantage can occur with reverse mortgages

Single elders sometimes opt for reverse mortgages
Whether it's Robert Wagner or another aging movie star, the message is the same: a reverse mortgage benefits seniors and offers the aging population a special advantage.  It is said to have been a gift from Ronald Reagan to help seniors stay in their homes, but the effect is to have created problems for many older citizens.

The reverse mortgage advertisements maintain that seniors can continue to stay in their home and receive a loan on the equity they don't have to pay back.  The problem is that the do have to pay it back, in ways and at times that can seriously hurt the unsuspecting senior.  Many of these people are seeking less to enjoy their retirement, which is the message given by the television spokespersons, than to have enough money to live on in those advancing years, when costs are higher because of medical needs.  And it is at that time that the reverse mortgage ends up being a disadvantage that comes at a time when seniors can least afford to lose anything.

Mildred is in her early 70's, sharing her residence with an adult son and his girlfriend.  She has a line of credit in the form of an ongoing loan against her property.  Her income had been so meager there were few options other than to see a reverse mortgage.  Like many seniors she was faced with financial emergency, unable to work because of physical ailments and without the income to sustain her.  While she continues to live in her home, the disadvantages of the loan might not be apparent now but could end up being a problem for her as she grows older and needs assisted living and both her and her son face a debt neither may not be able to repay.

In 2012 the New York Times examined the concept of reverse mortgages, pointing out these involve significant risk for older persons, a risk that can cost them their homes.   These loans are sold aggressively, using well-known movie stars that seniors would recognize from their youth.  The charm of the spokespersons coupled with the message that the money comes as a virtual benefit to seniors has brought a wave of response from unsuspecting elders who are seeking simply to stay in their homes, even as the cost of maintaining those homes while facing physical vulnerabilities that come with aging becomes more and more difficult.

Many of the big lenders have dropped out of the reverse mortgage business, leaving the door open to predatory lenders who look for the vulnerable senior as an easy target for seductive advertising claims.  While the business of loaning money under the reverse mortgage is legal, and protected by laws designed to offer seniors some protection, some of the wrong people have entered the reverse mortgage business in ways that can harm older folk.  Many of these lenders say the senior will never lose their home, a deceptive sales pitch since there are conditions when the loan is made. These lenders persuade the older spouse in a marriage to be the sole borrower, so the other spouse is not on the deed.  Then when the older person dies, the loan becomes due.  Brokers are sometimes given incentives to promote lump-sum loans as opposed to a line of credit, so the fixed rate and interest charges can over time become a debt load that often comes at a stage in life when the senior has less money to pay the loan, especially since the owner is required to pay taxes, insurances and other fees to keep the home.

Forbes has examined the problem of reverse mortgages and offered some of what they call "the hidden truths" about them.  For example, the notion that a person cannot lose their home is untrue.  When an elder has to move into an assisted living situation, the loan becomes due.  That puts the senior at a particular disadvantage, since the costs of care are higher when an individual can no longer live independently.   Anyone else living in the home is forced to move.  Furthermore, the family members are left to pay off the loan when the elder dies if they want to keep the home.  If taxes and home insurance premiums aren't paid, the resident can lose the home as well.

What's the answer to the problems caused by reverse mortgages.  Forbes explains that this type of mortgage should be taken only as a last resort.  Many seniors become desperate and look for the reverse mortgage to help pay for their last days, but the cost of assisted living and 24/7 care can exhaust the loan amount, forcing the senior into poverty at a difficult time.

CNN Money points out that new rules have made reverse mortgages safer but that there are still problems with them.  The new rules discourage seniors from taking a lump sum payment.   Still the loans are actually expensive as the fees and costs for a $200,000 loan can be as much as $15,000.  In addition the lenders also charge a monthly service fee and interest of about 5%, so the lump sum mortgage balance of $100,000 CNN offers as an example can double the debt in 11 years.

Often the senior takes a reverse mortgage thinking it is the best way to get ready cash to live out those senior years in comfort.  The problem is the expense of the loan and the conditions make it not a good option for everyone.  Experts say a senior should consult an attorney or accountant before signing up for a reverse mortgage, as the cost of the professional services in advance might end up saving a senior's home and future.  In other words, if something looks too good and is sold as having no strings attached, the final advice is to look for other options or another, more reliable lender who will disclose the problems as well as the benefits along the way.

No comments:

Post a Comment

Say something constructive. Negative remarks and name-calling are not allowed.