Reverse mortgages are not all the same
Q:
There seem to be ads for reverse mortgages almost constantly. How do you know if this is the right choice for you?
A:
You’re right. Ads for reverse mortgages seem to be everywhere. One of the reasons is because there really is something new to advertise. Recent changes have made reverse mortgages more attractive for some people.
For the uninitiated, a reverse mortgage is a mortgage specifically designed to help senior homeowners, age 62 and older, access some of the equity in their home.
There is no monthly payment with a reverse mortgage. You borrow the interest on the mortgage, which means your debt will continue to rise.
But the loan does not come due until the homeowner leaves the property (dies, enters a nursing home, etc.). At this point, the home is usually sold to satisfy the debt.
Qualifying for a reverse mortgage is based on age and home value, not credit history or income. Most reverse mortgages are insured by the FHA, which requires homeowners to go through counseling before securing a loan.
FHA-backed reverse mortgages are called home equity conversion mortgages (HECM). The lending limit for HECMs was recently increased to $625,000.
You can obtain a reverse mortgage with either a fixed rate, where you take all the money at once, or an adjustable rate, where you get a credit line and borrow the money as you need it.
In the past, the fees associated with a reverse mortgage was a major hurdle for many elders. Those fees could be as high as $6,000. Even though all the costs could be rolled into the loan, the fees discouraged many people.
With more lenders entering the reverse mortgage market, there are now more programs, with and without upfront fees, to choose from.
Reverse mortgages are now offered by many mortgage brokers and direct lenders, and the program choices have increased significantly.
More choices, however, mean more homework. It is important to choose a lender and program wisely. Check with your current bank and credit union.
They will likely not offer a reverse mortgage themselves but should be able to recommend a good starting point for you.
Ask your attorney or accountant to recommend someone. If you do not have an attorney, find one who is familiar with elder law. One good online resource is the National Reverse Mortgage Lenders Association at www.reversemortgage.org.
It is also important to involve your family members in your decision, since a reverse mortgage has inheritance and estate implications.
A reverse mortgage can be a great asset, but it is not for everyone. Do your homework, talk to trusted friends and family, and get answers to all your questions before going forward.
