5 Myths About Reverse Mortgages

A Popular Option for Seniors Age 62 and Older

Reverse mortgages, also known as home equity conversion mortgages, are becoming a popular option for seniors age 62 and older who are dealing with shrinking retirement accounts and higher health care costs. Here are some commonly held misconceptions about these FHA-insured loans:

Myth #1: I’ll lose some of my Social Security benefits due to the extra income.
Because the money you receive from your reverse mortgage is not considered income, you are not taxed on the proceeds. Your Social Security and Medicaid benefits remain the same as long as the money you receive from the loan is used within the same month you receive it. You can choose to take out the equity in your home as a lump sum, opt for recurring monthly payments, or use it as a line of credit that can be accessed in emergencies or as needed. Additionally, because the loan is secured by the equity in your home, you don’t need to meet the income and credit qualifications that are required in traditional mortgages.

Myth #2: If I am unable to repay the loan, I’ll lose my home.
Unlike many deferred payment loans that allow a defined grace period before payments become due, a reverse mortgage has no established time limit that triggers repayment of the loan. As long as your home is your principal residence, you are not required to make any repayments toward the loan, though you are still responsible to continue making payments on your property taxes and insurance. You also retain the title to your property as long as you are living there.

Myth #3: I will only qualify if I own my house outright.
While you do need to have a significant equity stake in your home to qualify for a reverse mortgage, you do not have to own it outright. If your home is still being financed through a traditional mortgage, you will need to use part of the proceeds from your reverse mortgage to pay off your remaining balance. In fact, many seniors who choose this type of financing do so to eliminate their monthly mortgage payment.


Myth #4: I won’t be able to pass my home to my family through my estate.
 In the event of your death, your heirs will still be able to make the final decision on the disposition of your home. If they choose to sell it, the remaining equity in your home after the reverse mortgage is repaid will go to your estate. If they would prefer to keep the home instead, they can refinance the home with a traditional mortgage and pay off the balance due on the loan.

Myth #5: I could end up owing more than what my house is worth.
The reverse mortgage loan amount that you qualify for depends on a variety of factors including your age, the amount of equity present in your home and the current interest rates. After considering these factors, the loan is structured with the intent to keep you from owing more than the current value of your home. If, at the time of sale, your house is worth less than your loan balance, the FHA will cover the difference.

Want more help?
Numerica has partnered with Security Reverse Mortgage to educate our members on all aspects of reverse mortgages. To find out if you are in the right position for this type of loan, call us at (800) 455-4265.

An Offer You Should Refuse

BBB Warns that Cash Gifting is Not Legitimate

Online promotions promising easy wealth by joining a cash gifting program or gifting club are flourishing on the Internet. With many families struggling to make ends meet in the current economy, the Better Business Bureau warns that cash gifting is not a legitimate way to make a few extra dollars, and in fact, is nothing more than a pyramid scheme.

Like most pyramid schemes of the past, cash gifting operations are targeting people with some form of an affinity — such as women’s clubs, community groups, church congregations, social clubs and special interest groups. But in keeping with the digital age, schemers have moved operations to the Internet and are now marketing their programs as easy ways to make money in a tough economy through videos on YouTube, paid ads on Google and attractive websites that engage victims.

While the creators of the videos vary, the content is usually the same. Typically, the person in the video explains — in vague terms — that they’ve discovered a new program to help people make money through cash leveraging or cash gifting and might even open a FedEx envelope with cash inside to prove the effectiveness of the program.

“Bernie Madoff isn’t the only guy with a Ponzi scheme; money-making opportunities promising big returns for little work are all over the Internet and are extremely enticing to millions of people struggling with today’s economy,” says Steve Cox, BBB spokesperson. “Anyone tempted by slick cash gifting marketing appeals should run in the opposite direction, or they run the risk of being the next person ripped off by a pyramid scheme.”

Some cash gifting schemes are touted as fundraisers for a good cause or as an empowerment program to help people help themselves. In order to take part, the participant must pay anywhere from $150 to $5,000. After making the contribution, which is funneled to people farther up the pyramid, the participant must then convince more people to join in order to start making money themselves.

Recruiters may claim that the operation is legal and often allude to IRS laws regarding gifting. However, almost every state has laws prohibiting pyramid schemes and can assess penalties on those who participate.

The BBB advises people to ask themselves three questions to evaluate dubious money-making opportunities:

• Do I have to make an “investment” or give money to obtain the right to recruit others into the program?

• When I recruit another person into the program, will I receive what the law calls “consideration” (that usually means money) as a result?

• Will the person I recruit have to make an “investment” or give money to obtain the right to recruit and receive “consideration” for getting other people to join?

If the answers are “yes,” BBB warns people to steer clear of the scheme, don’t give in to tempting claims online and never buckle under to high-pressure sales pitches, even when they come from the mouth of a trusted friend, co-worker, neighbor or church member.

Finding Balance

Your Time

Make Time, a Plan, and Make it Real

No one can immerse himself or herself in work nonstop and maintain a healthy sense of perspective. Finding the proper balance between your work and personal calendars just takes a little strategy and forethought. This summer is a great time to start.

Here’s how:

Make time for family. The summer is the perfect time to make a new commitment to spending time with your family. You don’t necessarily have to work less. All you need to do is integrate your family into your world. Maybe you can coordinate this year’s family vacation with one of your business trips, or while the kids are out of school, they could come to your business every now and then to interact and see how you run things. As a bonus, you’re teaching kids the importance of pursuing their passion in life.

Make a plan and stick to it. You know that work schedule you’ve been following to build a profitable company? Well, now is a great time to create a plan for your personal life. Grab a calendar for the summer months and get to work! If you’ve got kids who will be playing on sports teams this summer, go ahead and decide now on the number of games you think you will be able to attend. Figure out which games on their schedules work the best with yours, then mark these dates on the calendar. Doing so ensures you’ll give these family events the same weight you would a critical client meeting.

If you go on vacation, make it a real one. A real vacation doesn’t involve having a cell phone attached to your ear, a laptop that is constantly alerting you about new e-mail, or a BlackBerry that can be carried every place you go so that you don’t lose touch with the business for even a second.

To avoid these activities, leave detailed instructions about what constitutes an emergency with whomever will be looking after the business while you are gone, and tell them to contact you only if such an emergency happens.

Common sense is really the best barometer for balancing your life with your work, no matter what the season. Always ask yourself with each decision you make, “How will this affect my business?” and “Can I personally live with this decision?” There is a healthy balance for you, and you can find it.

 

Flying High

Linda Warren, Warren Air Video and Photography

Warren Air Video and Photography provides aerial and ground photography and videos throughout Southern California. Contractors use the aerial photos to document the progress of construction projects for their marketing materials, and realtors use them to promote property locations. To capture the scenic images, owner Linda Warren uses Robinson helicopters and Cessna airplanes for her business.

For more information about Warren Air Video and Photography, visit www.warrenair.com or call (818) 899–5974.

Talking to Kids About Money

Family Finance

Kids & Cash

Many 18-year-olds have left high school armed with a knowledge of U.S. history and calculus, but no experience with the realities of car loans and college tuition.

Having those first conversations with children regarding spending on tuition and making out a budget can be challenging.
 

“Don’t keep your child in the dark about finances,” says Adam Carroll, chief education officer with National Financial Educators. “Throw the whole money taboo out the window. It’s okay to discuss what money realities with them.”
 

Tad Barton is on a mission to help children understand those money realities. Barton teaches business courses at John W. North High School at 1550 Third Street in Riverside. He currently teaches 150 students in the school’s Global Business Information Technology (GBIT) Academy. In their sophomore year, students take an intro to business technology course, which teaches them skills such as Excel and Web design. In their junior year, they take an economics and entrepreneurship class, which teaches them how to invest, budget and spend wisely. Finally, in their senior year, students take over the management of the GBIT Academy’s online news magazine (www.motoricon.com), which allows each graduating class the opportunity to leave their mark on the site’s design and content.
 

“The kids really learn how to keep a budget, invest in the stock market and balance their finances. Instead of giving them a letter grade, we pay them money and monitor how they use that money as they are asked to find a place to live and budget in expenses. They succeed based on their financial responsibility. It’s very hands on. Instead of reading about it, they have to perform it,” Barton says. “No matter what job they get out of school, with these skills in place they are prepared to manage their money responsibly.”

Elizabeth Galindo, a senior at North High School, is vice president of the school’s Investor’s Club and Future Business Leaders of America. “The classes help me see the importance of every financial decision I make and how important budgeting is. Now I know how much I can spend on things,” Galindo says. “Our economy got into this mess because people overspent and got into debt. I don’t want that to happen to me. These classes empower me with financial independence and security.”

With the right kind of financial education, both at home and at school, the next generation is bound to be smarter and more secure than its parents.