MONEY MAKEOVER

Jeanne Cronin speaks in a calm whisper about her predicament. But her situation is desperate.

Cronin has exhausted her savings and 401(k) retirement plan. Her credit is shot after failing to make several mortgage payments this winter on a small house she owns in Pembroke. And, at 63, she has just been laid off from her job as a paralegal. Because of her credit problems, she can not refinance her house. Someone suggested a reverse mortgage. Was this a good idea? The house is worth at least $300,000, and Cronin has paid off all but $78,000.

Maybe not, said financial adviser Susan Brown, who agreed to do a Boston Globe Money Makeover for Cronin. Brown works at Family Financial Architects Inc., a fee-only financial planning firm in Natick.

A reverse mortgage allows senior citizens to tap into their home equity without selling the house, said Brown. Unlike ordinary mortgages, the lender makes payments to the borrower, in a lump sum, credit line, or monthly payments. The money is not paid back until the house is sold. However, because of Cronin's relatively young age and remaining mortgage debt, she is eligible only for $86,000, or roughly $500 a month. Not much of a nest egg.

Also, the transaction fees in a reverse mortgage tend to be high. They can be rolled into the loan but make the most sense if spread over several years, and Cronin thinks she might sell sooner rather than later. “When we talked, Jeanne seemed disinclined to take a reverse mortgage, and I think she came to the right conclusion,” said Brown.

There is another encumbrance on the Pembroke asset: a family upheaval.

Cronin's youngest daughter, 36, married but estranged with three children and a history of substance abuse, came to her mother a year ago. The daughter was involved with another man. A baby was on the way. “I don't know where they were living, maybe in a car, but she was pregnant, and clean,” Cronin said. “She needed a nest.” She let the couple live in Pembroke rent-free.

A son, “a beautiful little boy,” was born in January. He died a month later, smothered after falling from his sleeping father's chest onto a soft bed. Cronin spent the spring ferrying the devastated parents to and from the hospital for psychiatric treatment.

“Here I am, supporting this little household and not paying my mortgage, which I had been doing, and deeply caught up in my daughter's situation,” said Cronin, worn out by the turmoil. It was time to take stock of her future.

Fortunately, Cronin has two good options, said Brown.

She can sell her house now, or, with careful budgeting, she can keep her house until at least age 70. Divorced many years ago, Cronin lives with her longtime partner, Dick, in his house in Cambridge. He bailed her out when lenders threatened to foreclose on her house. She contributes modestly to household expenses and lives on a budget of about $3,000 a month.

Selling now would relieve Cronin of paying property taxes and insurance on the Pembroke house. The proceeds would allow her to meet current expenses. Moreover she can retire right now. By investing at an expected rate of return of 6 percent, she could delay taking Social Security distributions until her normal retirement age and still have funds for the rest of her life. She must earn as much as possible until the house sells and possibly borrow again from Dick to cover expenses, including her COBRA payments. Of course, her daughter would have to find another place to live, “an emotional decision that only Jeanne can make,” said Brown.

The second scenario -- careful budgeting -- assumes Cronin would take her Social Security payments immediately and plan to work for four more years, earning at least $18,000 annually for two years and $15,000 annually for the two years after that. And it assumes she can collect at least $500 a month in rent on her house. At 65, expenses drop as she becomes eligible for Medicare and a Property Tax Deferral loan. Cronin should wait until she's 70 or older to sell the house, to stretch that windfall as long as possible.

After meeting with Brown, Cronin said she was “just so [word deleted]*” for the big picture advice and is going to think about her options. Another bright spot: Cronin's daughter and boyfriend have both found jobs.

To be considered for a Money Makeover, fill out the form at the “Your Money” section of www.boston.com/business, or call 617-929-2916 and ask for an application. 

© Copyright 2005 The New York Times Company

* Family Financial Architects’ Compliance Consultant believes that any positive descriptions of the Advisor in this article could be construed as a “Testimonial.” Rule 206(4)-1(a)(1) of the Investment Advisers Act prohibits the use of testimonials by Investment Advisors. Therefore, one word has been deleted from the text.

It is not known whether the subject utilized the advice of the Advisor or whether or not they were successful in achieving some or any of their goals. Readers should not interpret any information here as investment advice and should meet with a financial professional to discuss their own financial situation. The advice given is strictly the opinion of the Advisor and offers no guarantees of success.