Reverse Mortgage Don't Do It!!
Ever have one of those moments where you are like WOW! Well I had one this morning. I have been working on my old Hubs, you know this whole catagory thing. Anyway I was reading my Hub The Ownership Fallacy, when I realized I had missed a very important and oft misundersood piece of Financial Crookery.
THE REVERSE MORTGAGE
I first read about these little creatures about 15 years ago. They were being touted as a good way for retired people to extract equity from their homes in the form of a monthly check.
This sounds pretty innocuous at first until you realize exactly what is going on.
Here is a brief rundown of the nuts and bolts of this piece of work.
You and your wife and or other are an elderly couple on fixed income. Social Security, Pension, maybe Disability. Point being, it isn't a lot and inflation is eating at your ankles. You visit your Friendly Financial Advisor to see if there is someway to make your situation a little better.
He says you know your house is paid for and has appreciated a lot, there is this great new program called a Reverse Mortgage I think it is just the ticket.
Here is how it works, you will pay me a small fee upfront, your house will be appraised and then we will give you a check every month based on the value. I think that will be the best thing for you. Let me get the paperwork, all your problems will be solved.
Ok, reality check! This appraisal will set the value of your home of which they amortize 80% of that number. This will give a payment schedule that they will pay you every month. Every month you will be building a Mortgage against your house for the running total of the checks given to you. Remember they are minusing the interest, so the Amount owed each month is larger than the amount paid to you.
Once you pass away (if your lucky the real risk is you will live longer than the 20 or 30 year term of the Mortgage) The house has a mortgage on it, which in order to go to your estate must be paid from proceeds of your estate or your heirs.
Think about this if you needed the money from a Reverse Mortgage you sure as hell don't have money in your estate to pay this loan. Your kids more than likely don't have it either.
So the Bank gets the house. Not only do they get the house they are banking you will die before they pay you most of the value for your house.
This is Generational Theft pure and simple. The banks know that no one will be able to save this house, they are taking the only thing of value most Americans will be able to pass to their heirs and they are taking it at a huge discount.
I learned the truth of this little land grab when I was working for AIG. They were paying very big Commissions to anyone who sold one of these to their clients. I didn't know at the time but soon figured out; if you get a big commission your client is getting a big sticking.
There was a huge push for these instruments. I thought how can this be a good deal?
Well, the problem is we Americans think in terms of Dollars. That is the worst way to approach wealth.
Wealth is a fixed value there is a finite amount in the world it cannot be created nor destroyed only transferred from one owner to the next!
I just coined the TMG first law of Money so you read it here first folks.
So using the TMG first law of money you must realize that Dollars have nothing to do with wealth since they expand and contract all the time. Let me explain, dollars can be exchanged for wealth, but that rate is not always the same therefore dollars cannot be wealth.
What the banks are doing by changing the value of Money are creating a system whereby they can obtain all of the wealth.
First, they used their power to inflate the Stock market sucking in Speculator from across the globe. Hoping they are using borrowed money to buy the stock. (The Margin account is a powerful tool of the Bank to obtain all of your wealth, because if the market goes down on a regular account you still have your percentage of ownership. If the market goes down on a margin account and you cant' pay the call they get the shares the actual wealth) They knock the bottom out of the prices creating Margin Calls and taking the shares in the accounts that cannot be covered. All the little guys panic and sell at low prices giving the rest of the Wealth over at a huge discount.
Second, they did the same thing with houses they inflated the prices getting everyone to buy thinking the value would keep going up. So as it did they encouraged through advertising and tax breaks, everyone to sell and buy up or refinance so that all of the equity was used up. Then VIOLA! The market is brought down all the houses are fully owned by the bank since there is now no equity left. They foreclose on a bunch of them and resale them to new home buyers who haven't yet handed their money over to the bank.
Lastly, there was still one hold out group. That's right the people who thought they had made it. They paid their homes off and were living the good life.
So the Bankers thought and they thought and thought and said to themselves there is still this segment of society that owns wealth that we don't have. How do we get it?
Then a genius stood up and said REVERSE MORTGAGES!!!