As promised, in this column I want to discuss reverse mortgages, but first, something that recently got my attention.
We talked about this last year, but it seems to me that “Christmas Creep” is getting even worse, since this year I came across rows of shelves of Christmas decorations and accessories as early as mid-September in many of the big box stores. Now it’s the beginning of October, and they are everywhere. Sure enough, a few articles I found confirmed that retailers are in fact “moving up” the Christmas season.
Why? Some say that it is to get ahead of online shopping, by getting shoppers in their stores in the holiday mood while they have them, and then dazzling them with the newest merchandise. Retailers say it is in response to customer desires, but I somehow doubt that there are that many of us who really want to purchase Christmas decorations before we have even dealt with Halloween and Thanksgiving, but I am sure that there are some. Then there are those gift packages for the holidays — coffee and mugs, perfumes, candy, and liquor and glasses, to name a few. I guess if you have a place to store them, you might want to pick them up now, if you routinely gift them, so that you can check them off your list.
On the other hand, don’t forget, if you don’t need to have the latest in decorations, cards or wrapping paper, after the holidays is the best time to stock up for future years at great discounts.
Let’s turn to the subject of reverse mortgages. If you watch television at all, especially during the day, you have seen the many reverse mortgage commercials with “trustworthy” spokespeople like Fred Thompson, Tom Selleck, and Robert Wagner. Here are some of the key representations. You can obtain tax-free cash from your home’s equity, and still own your home; you can eliminate regular mortgage payments forever; you only have to pay the loan when you leave your home; you will never lose your home; and you can obtain a retirement loan that pays you. A reverse mortgage: is a safe, effective financial tool; it can allow you to achieve a stable, secure retirement; it is not just another way for the bank to get your home; and it is government guaranteed.
In addition, the commercials tell you, if you are 62 or older and own your own home, how you can obtain a free DVD or booklet that will provide you with more information and answer all of your questions.
The bottom line for me, like it is with every other financial product, is that for some Americans 62 years of age or older, after they have met with their financial advisors and their families, a reverse mortgage — with terms that work for their particular circumstances — may be an important element of a sound overall financial plan. By extension, that means that it is not right for everyone. The key is to do the homework with your advisors, so that you know: what you may be getting into; that you can obtain the best terms for your needs; that you are absolutely aware of all of the possible defaults; and that it would work in your financial plan, including for your heirs.
Here are some important things for you and your advisors and families to note when evaluating a possible reverse mortgage. Although it is true that there are no mortgage payments, you are still responsible for real estate taxes, insurance and for maintaining the property, and if you fail to meet those responsibilities, it can result in a default. Also, it is critical to understand, and perhaps negotiate, the provision, “when you leave your home” — what about a six-month rehabilitation in a nursing home?
In addition, some believe that the origination and other upfront fees, as well as the interest rates, may be high, but you can check those out, shop around and negotiate. Furthermore, you can pay interest-only payments to stop the interest from being capitalized, and you can even make principal and interest payments.
In the next column we will look at myRA’s and other retirement vehicles for those who can’t take advantage of employer-sponsored plans.
John Ninfo is a retired bankruptcy judge and the founder of the National CARE Financial Literacy Program.