If it seems too good to be true…

Wondering what happened with that reverse mortgage I was considering? Well, I’m not going ahead with it. I’m not saying it’s a scam, but…

Having been approved I was sent a wad of papers requiring signature and/or proof of, amongst other things, payment of property taxes and amount of the mortgage line of credit. It took a lot of reading to get to the kicker. The amount of interest charged was nearly double what I’m paying on the line of credit. Based on the latter, I’d assumed I could pay what I thought would be the $300+ monthly interest payments. I certainly could not afford to pay the $700+ this would be.

When I sent the bloke at the mortgage company an e-mail saying I was having second thought based on the much-higher-than-normal interest rate, he rang me straight back. Apparently, as he explained, most people who get one of these reverse mortgages don’t pay the interest – they simply let the debt accrue until it’s doubled (or even tripled) by the time they die. This based on the calculation that the value of the home will continue to increase and thus, too, the equity, which heirs can have after you’re gone.   

He referred me to the chart on page 18.

Said chart (which gave me 15 years to live) optimistically suggested there could be up to $597,453 worth of equity in the house when I pop my clogs, assuming the value of the house increased by 5% a year. How likely is that? Not very. (There was an insane property bubble not unlike this which burst dramatically in the 1980s leaving a lot of people with negative equity in their homes.)

I mentioned when I last wrote about this that I wanted the shyster fees to go to a shyster I know. I told said shyster (actually a good mate) that he might be hearing from the company. He told me he’d been doing a lot of these mortgages in recent years. When I got back in touch with him after I discovered the interest rate, he told me something sad. He said that almost all the reverse mortgages he’d done the legal work on were for people who were desperate. Elderly couples (or singles) who were having trouble paying their utility bills and could see no other way out. And I guess that works for them – cash in hand with no interest payments required. I just hope the money lasts them. Or that they don’t end up going into a home. One of the reverse mortgage requirements is that you must sell the property pretty much immediately if you cease to reside in said home. No, you can’t rent it out to a third party in order to gain some income. You have to sell.

Well, bollocks to that.

Back to the credit union for a chat. It has now occurred to me that the existing mortgage line of credit (which I’ve considered a millstone around my neck for a decade since Mike’s son refused to pay it off) might actually be a better solution. Why trade a small(ish) debt for a huge one? Thinking about it properly, this makes no sense. However, the house has increased in value considerably since, at Mike’s suggestion, we took out the line of credit. Can it be increased? Yes! To the same amount that the reverse mortgage company was offering me. The big difference being that I’ll only be paying the lower interest on the money I’ve actually used, rather than an unaffordable interest rate charged on the reverse mortgage.

So, if the roof needs replacing or the hot water tank (how old is it anyway?) dies or I suddenly decide I simply cannot live with a Dior ballgown, I won’t be totally fucked financially. 

I might just go to town – to look at cookers.