Financial illiteracy challenges acceptance of a counter-intuitive mortgage
If there is one subject that cries for remedial instruction it’s financial literacy. Fortune.com found that nearly two thirds of Americans are in effect financially illiterate, unable to grasp basic financial concepts. As the Home Equity Conversion Mortgage has become increasingly complex in recent years, the knowledge gap has widened.
Before attempting to explain how a reverse mortgage works, we should perhaps conduct a quick assessment of the prospective borrower’s grasp of financial concepts. After all, who would want to jump from algebra straight to trigonometry? In reality, filling the role of a financial counselor is often impractical, nevertheless we should be mindful of many homeowner’s ability to absorb the information we are presenting.
Consider one question: if you take out a $1,000 loan that has a 20% interest rate, how much will you owe in one year in interest? Nearly two thirds could not answer correctly. The overall rate of American financial literacy findings come from the National Capacity Study by the FINRA Foundation.The very nature of reverse mortgages is counter-intuitive to the mortgages most have known and paid for most of their working years. That familiarity is fraught with myths and misconceptions. Take for example ….