Question for the Money Doctors
Question submitted on Apr 15, 2010.
QuestionI’m in good health and living on Social Security. I’m 82 and my wife is 80. I have access to a Reverse Mortgage Fund and am considering investing $10,000 to add income. What should I do without risking my investment? Thank you for your advice.
I personally am not that big on reverse mortgages due to the costs associated with them and an end result that could lead to a significant lack of flexibility down the road.
Some people I have come across are house rich and money poor. It is not uncommon in parts of California, New York, and other areas up and down the coasts to have a home worth millions, but a bank account worth only a few hundred thousand.
In those circumstances, I generally suggest that a close evaluation is made of what size home is necessary and to consider the location where you’re living.
For instance, if the homeowner lives in California, significant benefits can be derived by downsizing and living in another state with lower or non existent income taxes and lower property taxes. California still has the Prop 13 for very slow growth in property taxes. However, if homes were purchased at a high tax base, there could be significant benefits in moving to a lower tax base.
In the financial planning area, having little savings can be the result of a lack of retirement planning with the end result of a lower standard of living, lower flexibility, and moving toward making decisions that may not be in the best interest of the reverse mortgage candidate.
For instance, a reverse mortgage will charge significant fees, in addition to unpaid interest accumulating, reducing what you could have had otherwise. I look at these as financial minimizers over time.
For more information, refer to the following Bankrate.com discussion. http://www.bankrate.com/brm/news/financial_literacy/borrowing_money/reverse_mortgages_work_sheet_a1.asp
For additional information visit http://www.360financialliteracy.org/