A good instrument, but only if it is played wisely
Home equity loans are products getting increased attention as a means of meeting expenses among New Hampshire retirees. They’re good tools — if used cautiously. Used inappropriately, they can be devastating.
Many people are shocked to learn lifestyles have to change when they leave the workplace at 62 or 65. They no longer have the wages and salaries on which they have relied, sometimes for almost 50 years. They’re often on their own to get by on whatever Social Security and whatever they have been able to accumulate in a lifetime of investments and/or savings.
Sometimes it still isn’t enough. Retirees who thought they would be able to get by on Social Security get a rude and depressing awakening. The program was never intended as full retirement funding, but rather a foundation on which to build something more substantial for the late years of one’s life — a foundation that will soon crumble if some extensive repairs are not undertaken.
While it is the ideal family that has been able to supplement its net worth with investments geared to their retirement years, it is easier to do so today than ever before. Programs like various Investment Retirement Accounts and employer-supported 401(k) opportunities and other programs that offer tax deferrals have become popular in recent years. More and more people in the workforce have come to recognize there is no free lunch at the end of line.
The cost of living knows only one direction in which to change and lifestyles have to change as well.
For many families, a home is the largest investment they will ever make. It is something tangible, something that has value and liquidity. Each year mortgage payments are made, equity increases. When mortgages are retired after 20, 30 or even 40 years, homeowners have something fully theirs.
The New Hampshire Union Leader recently quoted several people concerning the value of what has become known as a reverse mortgage — where the equity in a retiree’s home is a usable asset and what is drawn from the equity does not have to be repaid until the house is sold.
“I think this product is going to be a lifesaver,” said Stephen Eastman, a reverse mortgage specialist with Financial Freedom. Homeowners can opt to receive monthly payments or lump-sum payments against the equity they hold.
At the same time … .
“It can be very good for people who don’t have any other resources, but who have the home and need to tap into that,” said Joanne Petito, a lawyer at New Hampshire Legal Assistance. “And that’s fine,” she was quoted as saying, “but you just have to realize that once you do that, that’s it and it’s gone after that.”
A reverse morgtage is not a credit card. It’s not something with which to lead the good life in whatever is left to it. Like Petito said, once you do it “that’s it and its gone after that.”
Retirees as a group are generally good risks for reverse mortgages. They’ve gained experience in credit management during their lives — some having gained it a hard way.
But caution remains the important word here — just as it does with any loan or investment.
If you don’t need it, don’t get. And if you do get it, use it wisely.
Source:
http://www.fosters.com/apps/pbcs.dll/article?AID=/20050624/NEWS13/106240075
