A Financial Bed-Time Story for Seniors
By Robert Trommler
Once upon a time, there was a happy senior couple that lived in a quiet little town in the good old U.S.A. and their names were Sam and Sandy Smith.
The Smiths were a classic cut of the Americana quilt. Sam was a WWII veteran and a retired Aerospace engineer. Sandy worked for the Red Cross during the war and helped raise a healthy family and enjoyed a throng of adult children and their eight grand-kids. They both were regular church goers and volunteered their time to worthy causes. Life was good. Really good.
The Smiths were following a well beaten path through their golden years that included some vacations and golf outings, the passing of a few friends and family members, and the arrival of their share of physical ills and issues. Life was still good.
Since every story always includes some challenges, the Smiths posed no exception. Their home of 35+ years was in need of some repairs or a remodel, their investment portfolio was shrinking and they had more than a few outstanding goals that required careful thought and attention. These included a possible (but expensive) long term care policy for them both, thoughts about a new car, increasing their life insurance coverage, and wishes to help their grandchildren with college tuition. Since it seemed there was a gap between their resources and their goals, this had left them wondering if their golden years were beginning to tarnish a bit through no fault of their own.
Like many of their generation (The Greatest, they were told) they were financially conservative and proud and private people. They had made a few poor choices in their day (who hasn’t) and always took full responsibility for their actions and consequences.
The Smiths were far from extravagant (more like frugal), but they found themselves in a not too uncommon position of wanting to make some changes in their life-style and not seeing clearly how they could accomplish their objectives.
Social Security checks and the pension from Sam’s years of hard work didn’t seem to be keeping pace with the level of their living expenses and they had already taken out a home equity line of credit to serve as an emergency fund and used $37,000.00 of the available $100,000.00 available limit.
At this point of the story, we find Sam and Sandy busy plugging some of the small leaks in their financial boat, but the situation is far from a crisis and they are confident that they can weather a storm (or two) and still stay afloat.
Unfortunately, without going into too much detail, it doesn’t take a stretch of the imagination to see how the current leaks would become larger and of more concern with the help of a needed auto repair (or new car), a leaky roof that needs replacement, or a hospital stay (or medical procedure) that isn’t fully covered by insurance. Life is still good, but it’s a getting a little harder to keep smiling. Maybe helping those adorable grandkids will have to wait.
Whenever a new player is introduced into a story, they usually have to earn their stripes and reputation, especially if they have a dark past. And as we all know, people of integrity won’t grasp at just any rope in times of crisis. Whenever possible, they want to know where that rope was made or at least what their rescuer’s intentions are. Enter a character wearing a hat, but the Smiths aren’t too sure at present if it’s white or black.
Sam Smith had heard about Reverse Mortgages years ago. In those days, there were rumors about shared equity clauses in lender contracts and horror stories about folks being thrown out into the cold by greedy banks and dubious mortgage officers. Certainly these were reasons to give one pause. That hat was beginning to darken in color.
But being an engineer, Sam was no stranger to details and doing his homework. He and Sandy were already getting enough direct-mail on Reverse Mortgage programs each week to serve as kindling for their living room fire-place. Maybe these programs couldn’t be this well publicized and still carry threatening terms and conditions. Why, Sam had even heard that the U.S. Congress (bless their hearts) had just approved some sort of bill that would improve the FHA version of this program. Now Sam felt even better about the same government that sent his social security check each month.
He found out that since the minimum age to qualify for the program was 62, he and Sandy both met that requirement. And, after contacting a Reverse Mortgage Consultant and going over his situation and details, they found that the program would pay off their current home equity loan and transfer responsibility for that into the Reverse program, which would mean staying in their home as long as they wished with no additional payments. The sun began to shine again. But the birds weren’t singing just yet.
Sam did more investigation and learned more about this possible solution to their problems. He discovered that the program carried mandatory mortgage insurance which made it “non-recourse.” He proudly told his friends that this meant repayment for the loan would not become a burden to his family as the home stood as the sole collateral for the agreement. Even if the amount he owed exceeded the home value, his heirs would not be responsible for repayment of any loan amounts above the fair market value of the home.
He also learned that the loan proceeds were not taxable and could be arranged in a monthly payment, held in a line of credit, or sent to him in a lump sum check. That dark colored hat was turning beige.
Then he found out that he could pay the loan off at any time without any repayment penalty or fees. He also learned that his family could keep the home (after he and Sandy no longer lived there) by refinancing the home and paying off the Reverse Mortgage. Or, if the home was sold, any remaining equity after the loan was paid off would go directly to his kids. Hmmm. Who would have thought? Sam was beginning to think he was a genius for finding out about this option.
After even more digging and consideration (remember, Sam is an engineer) he determined that the FHA program’s adjustable interest rate was set by the good old U.S. 1-year Treasury note (a very conservative and non-volatile index) and that his stellar credit rating (or fixed income) wasn’t even taken into account if he applied for the loan. Birds were in full song at this point and Sam even thought about putting sun screen on.
To say this story has a happy ending would be a gross understatement. Sam and Sandy completed their Reverse Mortgage loan process and had their application approved in about 30 days. They received an initial cash withdrawal to complete some urgent projects, set the remaining balance up in a line of credit account (that was increased about 4% per year like the spending limit on a credit card) and didn’t owe any further payments on their prior home equity loan. Life was really good again.
And Sam looked (and felt like) a hero. He told his golfing buddies that this program obviously isn’t for every senior home-owner, but he was convinced that in the right situation, a Reverse Mortgage would perform unlike any other financial option that existed.
Sam and Sandy slept the sound sleep of those with a bright future. If their golden years brought additional storms, they had insurance nets and emergency funds in place that would help their boat to ride the waves.
So sometimes, an old dog CAN learn new tricks. Like making friends with strangers that wear white hats.
The End.
Robert Trommler
Reverse Mortgage Consultant
949 809 2597
714 856 9555
Robert is a 30+ year resident in Orange County and has been in the Reverse Mortgage business for 4 years. He is a Rotarian and serves on a local board for Meals on Wheels (a non-profit offering of South County Senior Services) and is also affiliated with a local chapter of the National Aging in Place Council.
If you would like to contact Robert Trommler for information or as a guest speaker, please contact Frances J. Harvey at 800-998-6329 or info@turningpoint.org. you may also learn more about the Speakers group at http://www.tpspeakersgroup.com/
Used with permission
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The material contained in this newsletter has been prepared by an independent third-party provider. The material provided is for informational and educational purposes only and should not be construed as investment, financial, real estate, and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.
