No. 677

The next password is xray



If we lived in a perfect world, we would not have to worry about unscrupulous people who try to take advantage of us. Unfortunately we live in a world that is far from perfect and there are dangers and pitfalls lurking on every hand, where someone or some company is all too happy to relieve us of our hard-earned money. A good example is something that has come to be known as a Reverse Mortgage. If you watch their commercials on television you would think a Reverse Mortgage was the best thing to come along since sliced bread, but according to a letter I received from a reader in Illinois a while back, you had better read the fine print first.
In fairness, I will say that there may be cases where a Reverse Mortgage is the right solution to solve a problem. My reader, whose name is David, spent 40 years in the mortgage market and he believes that Reverse Mortgages will be the next big blow-up within 5 to 10 years. The company David worked for did not make sub-prime loans so they were not drastically affected by the mortgage meltdown, but he shared several pitfalls to watch out for regarding Reverse Mortgages. A couple were not real clear, but you will get the gist of it.
“1. People overspending for things they don’t need. 2. Children thinking their parents are homeowners when the bank has a big mortgage. 3. Payments are not made but the interest is added monthly. 4. Balances go up monthly and interest is added on interest by compounding. 5. They will add insurance and taxes on instead of paying when they could. 6. Borrower will think these are OK or they may be given to non-deserving kids.”
And finally David says, “I can see instances where these senior citizens have a $100,000 home that was free and clear and now they owe $70,000 to $80,000 and have only received $25,000 to $30,000 in cash. The interest on interest has compounded like earnings on an IRA.”
Then he states the obvious, at least to most people, “Mortgages are better where the interest is paid and equity is maintained. Reverse mortgages are not for everyone and we should know all the facts before taking out one.” After reading David’s letter I went to the Internet and did a little research. One site, listed 13 Reverse Mortgage problems in the form of red flags. I won’t have space to list them all, but here are a couple to give you the gist of what the article says. If you are considering a Reverse Mortgage you can check this out for yourself. All I am saying is, beware of red flags when making a decision.
1. Complicated paperwork may have unforeseen consequences. If you don’t understand the document, you won’t understand the consequences. Take time to get proper guidance, second opinions, and a review of appropriate alternatives. 2. High cost of a Reverse Mortgage may outweigh the benefits of alternatives. As in any loan, there are going to be associated fees and costs. These should be clearly spelled out up front. Utilize your accountant, lawyer, trusted financial adviser to review any loan application before signing it.
There are 11 more red flags provided and you can review them at the Web site I gave earlier, but the bottom line is that we should do our homework when considering a Reverse Mortgage and signing on the dotted line. This information could be very valuable for those of us who have a lot of equity in our homes, or children or grandchildren who are affected by decisions their parents or grandparents make regarding their home, when they really and truly want to do the right thing. What’s the old saying, “A stitch in time, saves nine.”
(EDITOR'S NOTE: Jim Davidson is a public speaker and syndicated columnist. You may contact him at 2 Bentley Drive, Conway, AR 72034. To support literacy, buy his book: “Learning, Earning & Giving Back.”)

The next password is xray