I'm often troubled by the way things are advertised on television. It is understandable that an advertiser wants to present his product as favorably as possible, that he wants to show prominently the product's most attractive features, and that he wants to play down any negative considerations that might affect people's decision to buy the product. But it sometimes seems to me that ads are very content to leave people with miss-impressions, leaving us with the necessity of maintaining a "buyer beware" attitude.
For some time now, I have been watching former Senator Fred Thompson and actor Henry Winkler advertise reverse mortgages. Both men have some good and sound things to say about reverse mortgages, especially as applies to older people who face problems of coming up with money to live on in their older years. But it seems to me that both of them leave some impressions which cloud the real picture for people who might be considering this relatively new way of "financing" their retirement.
Henry Winkler has done several movies, but some of us older people remember him best as "The Fonz" on the "Happy Days" TV show of years ago. The Fonz was the ultimate cool dude. All the girls loved him, and all the boys were jealous. The Fonz nearly always had things going his way, living the life that all cool dudes aspired to, wanted to be, or kind of admired but for one reason or other couldn't achieve for themselves. The Fonz was showing his generation how to be young, in a cool way, or at least to impress them by how he himself was young and cool. Now Henry, no longer "The Fonz," is telling us how to be cool about being old.
We haven't always had the reverse mortgage. Reverse mortgages were a creation of the 1980s, during the President Ronald Reagan era. The idea was to help older people remain in their homes as they grew older and their savings dwindled. Prior to that time, few people would have conceived of a type of mortgage other than the standard "frontwards" mortgage. The idea of using a backwards financial instrument to pay one's bills in his later years was a new concept. Of course, even a standard mortgage was a novel invention years ago to help people buy property and a house to live in. What a novel thing it was! You could start living in a home even before you had it paid for! The only thing is, you have to pay interest on the balance of your loan. Some years ago, when interest rates on mortgages were 7.25 percent and higher, you might end up paying for your house three times over, just because of the interest which accrues over the term of a 30-year mortgage. But the mortgage is a great idea, and many, many people would be unable to buy a house without it.
Now Fred and Henry are pushing the reverse mortgage as a way to "live a better retirement!" You may think it is too good to be true, but it isn't, they say! With a government-insured reverse mortgage you can eliminate your monthly mortgage payment. You can get cash from the equity in your home, to pay bills, pay off credit card balances, pay medical bills, take a vacation, and generally live a better lifestyle! The loan will be paid off when the last occupant leaves the home. And, the best part is, so they say, "You continue to own your home!" Fred has even said, "You still retain full ownership of your home!" Now hold on there, Fred and Henry, I'm sayin' that last there's a bunch of horse feathers! How are you retaining ownership of your home if you are cashing out your equity?!
When we first bought our house and made our down payment, I was saying that we now own the bedroom and the bathroom, and the finance company owns the rest of the house. After we had made payments for several years, I was saying we now own both bedrooms and the bathroom. Taking out a reverse mortgage would be like borrowing back the payments we had made on the house. Instead of paying on it, we would be un-paying on our house, gradually going back into debt on it, gradually turning it back to the finance company. They just wouldn't take possession of it until we are gone and out of the house.
If a person is not counting on leaving his property to his heirs, a reverse mortgage might be a fine and practical idea. He can put a bumper sticker on the car, saying, "I'm spending my kids' inheritance." When he passes away, the property will be sold to pay off the balance of the loan. But if he is counting on having an heir to inherit the property, he will not want to leave a big reverse mortgage loan that will have to be paid off by his heir.
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Editor's note: Jerry Nichols, a native of Pea Ridge, is an award-winning columnist, a retired Methodist minister with a passion for history. He is vice president of the Pea Ridge Historical Society. He can be contacted by e-mail at [email protected], or call 621-1621.
Editorial on 06/08/2016