Wednesday, June 19, 2013
Hopefully, the day will never come when you will need to tap your very last line of defense, your home. What does an 80 year old widow do if the last of her savings and investments are disappearing because Social Security is just not enough? More than likely she still has her home, her very last line of defense. The equity in that piece of residential real estate might generate enough income to carry her to the grave. In most cases the best course of action would be to sell the house and invest the proceeds, then move to a nearby apartment, perhaps in a senior community. Unfortunately, 80 year old widows do not tend to view a house filled with a lifetime of memories and treasures as residential real estate. They tend to view their house as a piece of themselves. There is an option, reverse mortgages. However, this relatively new investment tool is dangerous. Reverse mortgages are often sold by slick con artists who take advantage of frightened desperate old folks who sometimes are hampered from making good decisions by cognitive issues. If Grandma or Grandpa is thinking about one of these things, it is your duty as a child or grandchild to make certain they will not be exploited. It is also your duty to tell them if they are incapable of maintaining a home; that it is time to move on. It is quite likely your parents or grandparents will ignore you if you are the bearer of bad news, but it is your duty to tell them the truth. So what is a reverse mortgage? The correct name for these financial instruments is a Home Equity Conversion Mortgage (HECM). They are offered under FHA guidelines to allow older Americans to withdraw some equity from their homes to fund their living expenses. The National Council on Aging offers a booklet entitled Using Your Home to Stay at Home to explain the basics. This booklet is approved by the U.S. Department of Housing and Urban Development.