Senior moments and reverse mortgages
RONALD S. GOSECO
I just completed a 200-mile bicycle journey with my wife Laarni together with my PMA Mistah Dick and his wife Edith in the US. The journey and the adventure were our redefined senior moments. Curiously, the same commercial ad on reverse mortgages kept appearing on TV every time we settled in for the night. The ad was targeted at senior audiences so the television algorithms were apparently working on the shows that we’re watching, which were mostly news programs.
Our journey started in the historic downtown Chicago Route 66 marker. We planned it this way as we wanted to imbibe the spirit of adventure of the early travellers as they pushed to the west. We started our trip on the magnificent Lakefront trail overlooking the vast Lake Michigan. We passed through the major landmarks of the city including the Burnham Park, the Planetarium and the Shedd Aquarium. We brought our Brompton folding bikes for this trip. It was a big adventure on small wheels. The advantage of these bikes were their easy stowability as we checked them in on board the plane from Manila and brought them on trains and buses. They also fit snugly on the car rentals as well as the ubiquitous Ubers that are still plying US roads.
From the lakefront, we biked through a section of South Chicago which Edith described as an eerie movie set. One could almost imagine gangsters moving through the double grilled doors of some of the houses that we passed by. It was mainly deserted and peaceful before noon so we were able to enjoy the experience. Dick subscribed to a bike trail guide which avoided the busy thoroughfares. The on-line guide directed us through these quiet neighborhoods and established bike trails. From that section of town, we entered our first forest trail which was a pleasant surprise as it had double lanes and was asphalted. We’re amazed to find out that in the 1990s, Illinois alone had over 500 miles of connected biketrails. One immediately realizes the difference between living in the developing world when bike trails in Illinois are even better than most of our roads. One can hope that trails like this could be part of the build, build, build. The trail meandered through historic canals, roads, hills and meadows. It passed through iconic neighborhoods like the town of Frankfort which also looked like a movie set , but this time, of a colonial town complete with all the modern facilities. We continued on and explored the American mother road and got our kicks on portions of Route 66. This route was dotted with strange and artistic attractions like the giant Gemini spaceman in Wilmington and the giant murals of Pontiac.
From Illinois, we boarded the Amtrak California Zephyr which was to take us to California through the Colorado Rocky Mountains. We got off in Salt Lake City to drive to the town of Moab where we trekked through the Arches National Park and biked along the Colorado river. This town together with Springdale hosts over five million tourists annually. These tourists mainly visit just two of the big five national parks in Utah, the Arches and the Zion National Parks. More tourists visit the three other parks. I realized this is a number that we could only dream of in our country. After Utah, we continued our senior moments (adventure) to California but that’s a story for another time.
I move on to the curious and pervasive TV commercials that specifically targeted seniors. First, what’s a reverse mortgage? It’s a type of home loan for senior homeowners that requires no monthly payments. Yes, you draw a loan on your home but don’t pay the usual monthly amortization. Sounds too good to be true? There has to be a catch somewhere. Borrowers are still responsible for property taxes and insurance plus maintenance, of course.
These mortgages were designed to allow seniors to access the home equity they have built up in their homes and defer payment of the loan until they die, sell or move out of the house. The rising loan balance plus interest can eventually grow and exceed the value of the home, particularly in times of declining home values or if the borrower continue to live in the home for many years. The lenders are betting on continuously rising real estate prices (or possibly early death). The borrower or his estate is generally not required to repay any additional loan balance in excess of the value of the home.
Going back to the advertisement that greeted us every time we turned on the TV. The spokesman for this product is Tom Selleck. “Why him?” you would ask. Choosing the right celebrity spokesman for cars, food, shampoos or services is a tricky business. Advertisers consider it a blend of market research, Q ratings ( a measure of brand appeal) and plain old fashioned luck. It’s even tougher when one has to target seniors who fall outside what advertisers call the target demographics of consumers ages 25 to 54. Seniors also have more experience and are assumed to be sophisticated buyers. Selleck, 72, the star of Magnum PI and Blue Bloods was chosen because he’s trusted and credible as a career actor. He has also engendered goodwill both on and off screen. In a certain way, American seniors may see themselves as being on the same boat as this senior celebrity. They know the risks of not having enough money to stay in their homes whereas this celebrity knows the risk of ruining his reputation. You have to ask yourself though, would you really trust this actor with your life savings?
The jury is still out on the benefits, or the pitfalls of the reverse mortgage market which is apparently growing in the US and is currently available in the Philippines. Some economists argue that reverse mortgages may benefit seniors by smoothing out their income and consumption patterns over time. Some regulators and naysayers argue that reverse mortgages are complex products and difficult for consumers to understand specially in light of possibly misleading advertising, low quality counselling and risk of fraud and other scams. It’s even quite possible that many consumers don’t use reverse mortgages for positive consumption smoothing purposes advanced by proponents.
There are clear risks and rewards in any financial product. Reverse mortgages could brighten up your senior moments but you have to be aware of the downside as well.
Ronald Goseco is currently EVP of the Financial Executives Institute of the Philippines
The post Senior moments and reverse mortgages appeared first on The Manila Times Online.