Posted on Thu, Jul. 9, 2009
Dear Harry: I have been retired for the last six years. I get SS of $1,300 a month and I draw $1,500 from my IRA as the required minimum distribution. I am finding it more and more difficult to live on that money, so I have been eating into my savings to the extent of a few hundred dollars each month rather than hit my IRA for more. At this rate, I'm afraid that I'll run out of savings in the next five or six years. If I should get hit with some unforeseen expenses, I could really get hurt. The manager of the branch of my bank suggested that I consider a reverse mortgage. I know that you have mixed feelings about reverse mortgages, and you suggest them only in certain limited cases. Do I fit into that category? I was told that my bank will waive the loan-origination fee of $6,500 and give me monthly payments of $600 a month for the next 20 years. She said that my life expectancy is about 17 years, so it looks like a good deal. She also said that they can re-evaluate the payment after 10 years and 15 years to see if it can be increased because of inflation in my home's value. There will be no decreases. It looks OK to me as well as to the counselor that she insisted I see. What about you?
What Harry says: That fee waiver helps your deal look better than most. So does the re-evaluation provision. At this point, my major concern is the interest rate. It appears to be in line, but it should be under 6 percent in order for me to feel comfortable. I would further want to compare the reverse mortgage with a home-equity line of credit. You might be able to get a better result by what would appear to be creating your own reverse mortgage with the line of credit. The drawback here would be that the interest rate is rarely fixed for your lifetime as it is in the reverse mortgage. Have your bank manager lay out a deal with this approach so you can make an informed decision as to which is better for you.
Get back to me with the comparison if you're not sure of which way to go.
It bears repeating that reverse mortgages are not for everyone. There are too many up-front costs and often too high an interest rate. *
Write Harry Gross c/o the Daily News, 400 N. Broad St., Philadelphia, PA 19130. Harry urges all his readers to give blood - contact the American Red Cross at 800-GIVE LIFE.
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