REVERSE MORTGAGES . . . NOT FOR
EVERYONE!
A Reverse Mortgage is a government backed loan option for elderly home
owners who are "equity rich but cash poor". Under a reverse mortgage,
a homeowner borrows against their equity, either in a lump sum or in monthly
payments. The unique aspect of the loan is that the lender gets repaid only
when the house is sold. The homeowner, in the meantime, has the option of remaining
in the home until death. In some cases, this results
in the lender losing money as the occupant lives longer than expected and has
"drawn" more in cash than the actual value of their equity.
While these loans have been available for ten years or more, relatively few
persons have taken advantage of the program. With the aging population growing
rapidly, however, there is an anticipation that
several million potential borrowers will be eligible for a reverse mortgage.
In the past, the profile of a typical borrower was an individual in his/her
mid seventies, living alone with no heirs and an income near the poverty level.
In other words, the borrower was substantially poorer than other elderly
households and had no direct heirs. A recent study of the program revealed a
disturbing aspect . . . 60% of reverse mortgages were paid off for reasons
other than the homeowner's death, the result of a homeowner forced to leave
their home due to illness, the need for elder care, etc. The departure from the
home often required a sale of the property, usually resulting in huge costs to
the homeowner.
Evidence is quite clear that a borrower who moves out of the home or sells
it within a few years of acquiring the reverse mortgage will owe a substantial
amount in fees and interest but is unlikely to have received much money via the
cash advances. It is also clear that a potential borrower needs to acquire
competent, unbiased counseling regarding both the advantages and the many
pitfalls of a reverse mortgage. Sometimes, after good counseling, it may be
better to simply sell the home and use the equity in other ways.
The idea of being able to acquire a monthly stipend via borrowing against
one's home equity is enticing. The up-front fees paid to lenders that originate
these loans can be substantial and profitable. As more people become eligible
for the program and as the profitability for lenders remains high, there is an
increased likelihood that more lenders will enter the reverse mortgage market
arena. This could result in some lenders being less concerned with what is best
for the elderly client and more focused on the profit margin of making the
loan. Unless the proliferation of lenders is coupled with reforms to protect
the consumer, unwary seniors could be lured into inappropriate, unfavorable or
unnecessary reverse mortgages with little recourse against the originating
lender. So, caution is advised.
While a reverse mortgage may be just what some elderly homeowners
need, it is not the answer for everyone. The following web sites may be helpful
as you seek additional information:
Find sources of reverse mortgages at:
www.reversemortgage.org
Freedom financial
Web Page/Reverse Mortgage