Senior Finances – Safeguard Your Financial Affairs

How many times have you heard about a senior citizen who was the target of a financial scam? It seems like these scams are reported several times each month. There are probably more happening than we hear about on the news. And the scams are every bit as likely to happen to people who are not senior citizens if they are not careful.

Why are there so many issues?

The truth is we have people in our world who will prey on anyone they can take advantage of. And it’s not just individuals who are scamming people. Wells Fargo—one of our major banks—secretly opened millions of accounts without the permission of their customers.

The reality is this: we all need to treat financial transactions with caution and a healthy dose of suspicion. Don’t give your complete trust to anyone you don’t know well, even if it’s a major business like your bank.

One of the most often reported complaints of senior citizens deals with Reverse Mortgages. This type of loan is available only to homeowners aged 62 or older. A reverse mortgage is a type a financial agreement in which a homeowner relinquishes equity in their home in exchange for regular payments, typically to supplement retirement income.

The balance on a typical mortgage declines as you pay down the loan. However, on a reverse mortgage, the balance increases over time as interest accrues on the loan.

The only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage or HECM and is only available through an FHA approved lender. (Not all reverse mortgages are backed by the FHA so be cautious if you are investigating this type of loan.)

The balance is not due for as long as the homeowner lives in the property as their primary residence, continues to pay required property taxes and insurance and maintains the home according to FHA requirements.

When the mortgagee dies, or moves out, the estate has approximately 6 months to repay the balance of the reverse mortgage or sell the home to pay off the balance. If the sale of the home is not enough to pay off the reverse mortgage, the lender (not the borrower) must take a loss and request reimbursement from the FHA.

No other assets are affected by a reverse mortgage. For example, investments, second homes, cars, and other valuable possessions cannot be taken from the estate to pay off the reverse mortgage.

It all sounds reasonable, but reverse mortgages are not for everyone! The person who is selling the reverse mortgage probably isn’t the best person to advise you if it’s a good thing—after all, they want to make a sales commission. This is especially true if he or she acts like a reverse mortgage is a solution for all your problems, pushes you to take out a loan, or has ideas on how you can spend the money from a reverse mortgage.

For example, some sales people may try to sell you home improvement services and suggest a reverse mortgage as an easy way to pay for them. Or some reverse mortgage salespeople may suggest ways to invest the money from your reverse mortgage and pressure you to buy other financial products, such as an annuity or long-term care insurance.

Before applying for a reverse mortgage, meet with a counselor from an independent government-approved housing counseling agency. Some private lenders offering reverse mortgages also require counseling.

The counselor is required to explain the loan’s costs and financial implications. The counselor also must explain the possible alternatives to a reverse mortgage such as government and non-profit programs. The counselor should help you compare the costs of different types of reverse mortgages and tell you how different payment options, fees, and other costs affect the total cost of the loan over time.

We always advise people to seek godly counsel before making large financial decisions and a reverse mortgage falls into that category.   Proverbs 24:6 says, “For by strategy war is waged, and victory depends on many counselors.”

The bottom line is if you don’t understand the cost or features of a reverse mortgage, ask questions until you do understand. If you feel pressure or urgency to complete the deal, walk away.

A second frequent problem relates to deferred interest on loans such as credit cards balances and loans for washers, dryers, refrigerators or furniture. Deferred interest loans are available on pretty much any big-ticket item that people want to buy without first saving cash for the purchase.

These offers promise no interest payments for months or even years, which sound enticing, but can be dangerous. If you pay this type of loan within the time frame allowed, you’ll benefit from not having to pay interest.

The downside of a deferred interest plan is that the interest does not disappear unless the consumer pays off their initial purchase by the time the deferral ends. A single late payment or failure to pay the entire balance by the deadline can trigger sizable financial penalties. If a balance remains, consumers will owe full interest from the purchase date on the original purchase amount. And the interest charges may be as high as 30%.

Retailers are now required to tell you that payment failure can trigger high interest charges, but the fine print can be confusing. The best way to handle large purchases is to save first, and pay cash.

Unauthorized charges for products or services can be another problem. When you sign a financial agreement, be sure to read the fine print so you know what the agreement includes and excludes. Investigate any contractor you hire to be sure they are licensed and bonded. And always check credit card and bank statements to protect yourself against fraud.

The Consumer Financial Protection Bureau (CFPB) protects consumers against fraud on many financial products including credit cards, mortgages, bank accounts, student loans, car loans, credit reporting, money transfers, debt collection, and payday loans. Their website provides resources for older adults as well as their care givers.

So, what can you do to protect yourself or your senior relatives?  Use the resources at your disposal to seek counsel before any large transactions. If you are a senior who needs assistance, don’t be afraid to ask for it. And if you are trying to help a senior citizen, become familiar with the CFPB guidelines on Managing Someone Else’s Money.

Proverbs 11:14 tells us that, “For lack of guidance a people falls; security lies in many counselors.” Seeking godly counsel before making large financial decisions is a good way to keep your finances safe.

For more on this topic, listen to the Compass Catholic podcast on Podbean.

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