Parent wants to do Reverse Mortgage but doesn't seem a good idea
My dad owns a home with very small mortgage in Lafayette that is now worth a good deal. He's in great health, super active and is 81. He has a good income that should cover all expenses plus could save - but my sibling milks him for money and has for decades so dad struggles to have enough every month and has gone through all his savings.
I am very concerned about this reverse mortgage and he is defensive as to why he wants it. The only explanation was that he is worried that at his age things could change quickly so he wants to have the cash for us to be able to afford to pay for in-home care if he needs it. He's very independent and definitely wants to stay in his home no matter what but he still has a lot in his 401k and IRA (takes mandatory distributions) so I would think it would be better to access those instead. He won't talk to me about this decision which is usually the case when he plans to give more money to the sibling but I don't know for sure.
From what I see, reverse mortgages are normally for people who can't meet monthly expenses or who have no other assets to access so need to tap into their home but in his case, since he doesn't have difficulty meeting monthly expenses (or shouldn't if not giving all his money away) it wouldn't make sense - and if he wanted to tap into a source to give more money away, won't it be better to close the IRA or 401k and use those funds? I just can't figure out why a reverse mortgage would be good when he could easily live another 15 years like his father and brother both of whom lived to be almost 100. I told him think if you had done a reverse mortgage 15 years ago you would have been locked into a value half what it is now. It always feels like the top of the market and I am sure we'll go through another slump in the next few years but I still don't think it makes sense for him.
Dad is naturally sensitive to making his own decisions so I want to be respectful of that but on the other hand I just can't stand back and not intervene if the decision is financially bad considering it's his one big asset. (For background, a similar thing happened to my divorced mother, in her case all her savings were gone through until all she had left was her house so she sold it suddenly and I just stood back afraid to step in knowing how unstable my sibling is but I regret that so much).
I want to approach this logically but who do I turn to? What sources tell me if it is the best decision for him or not? He went to his "retirement guys" and they told him it was a good decision and that reverse mortgages are now good, that they have fixed the problems they had before. I tried to tell him of course they would say that but he just won't listen. I think he feels overwhelmed and doesn't know what to do and I am just worried sick after seeing what happened to mom. If it is better for dad to tap into his 401k & IRA instead of a reverse mortgage and something were to happen to him, would I as his POA be able to take a home equity loan or come up with more money easily?
Any advice, contacts, webpages or experiences would be so welcome!
Parent Replies
If the plan is to keep the home after your parent passes, make sure he puts it in a trust before getting the reverse mortgage. Probates take so long that the reverse mortgage company is likely to foreclose before probate is completed.
It's obvious that you are really emotionally wrapped up in this situation, but I guess reading your post made me wonder if what you were really upset about is the fact that your sibling has drained a lot of money from your dad and that this is his last big asset to take. I'm not judging, I was disinherited by my own dad, and a lot of money was left to one sibling (out of several) and some but not all grandkids, I get it, it sucks. But ultimately, it's his money and assets to do what he wants with, and if he won't listen then there's not much you can or should do. In the meantime, I'd advise that it's better to focus this energy on your own life and family, and try to be a loving support to your dad, who you obviously care about and are lucky to have around, and enjoy the time you have with him. Good luck!
I think you have a people problem, not a financial problem. You and your father have different opinions. You don't want him to spend money on your sibling, and he does want to spend that money. You really have no control over this. The only thing you have control over is yourself and your own money. You can tell you dad: I am worried about the reverse mortgage and feel it is a bad idea. But it is your house and you can do with it what you want. But if you end up needing more money, I am not bailing you out.
I would resent it if my sibling got most or all of the inheritance because of bad money management. And I suppose you resent what is going on. But there is really nothing you can do about it.
Complicated situation...financially, you are correct to question a reverse mortgage. The fees are high and this appears unnecessary. Can you offer him a consultation with a fee paid financial advisor ie someone expert, neutral, and without self-interest?
However you also have the family dynamic with your sibling...it appears to me that unless this is tackled, financial sense alone won't help. A financial advisor could frame the situation as what can he afford to do for his child without damaging his own future. But someone trusted who could explore with him limit setting and enabling (vs genuine disability and need) could be invaluable.
As an attorney who has done a fair amount of elder financial abuse litigation, I've had a number of clients who got ripped off by people who sold them a reverse mortgage. They are not as simple as the brokers would have you believe, and my clients ended up losing their homes. A good starting point for evaluating their suitability for your situation are the fact sheets published on the website for California Advocates for Nursing Home Reform, a non-profit which advocates (in a much broader fashion than its name suggests) for the rights of seniors. They can be found at:
http://canhr.org/factsheets/abuse_fs/PDFs/FS_RevMortSuitability.pdf
http://canhr.org/factsheets/abuse_fs/PDFs/fs_RevMortSuitabilityWorksheet.pdf
A lot of these responses have focused on your response to your sibling, as if you are envious of him, and that seems totally weird and unfair. It's obvious to me that your sibling is committing elder financial abuse, which is also what happened to your mom. I am pressed for time as I type this so I can only provide one website, but armed with this phrase you should be able to google up some more help. I don't know why it is so difficult for people to be empathetic, and I am sorry you have gotten this sort of response. I wish you the best and you should feel welcome to contact me if you want emotional support and help looking for assistance. I work in hospice care and while I'm by no means an expert, I certainly know where to start. Again, I'm so sorry this is happening, and you are a really good son / daughter.
http://www.napsa-now.org/policy-advocacy/exploitation/