Reverse Mortgage News

Reverse Mortgages Getting Better

But Costs, scams mean seniors still need to be on guard

April 24 , 2008

By Lew Sichelman of Market Watch.com

Question: My aunt is in a similar position as the 91-year-old woman with an oceanfront house in Southern California. It was suggested to us that she use a reverse mortgage. What are the cons to a reverse mortgage?
Answer: There are a couple that come to mind. For one thing, the fees are expensive, not just to originate the loan but also to administer it. But they are coming down as competition among lenders heats up.
For another thing, a few scam artists seem to have found the sector and are pushing inappropriate loans on unsuspecting borrowers. But that, too, shall pass as the businesses' standard bearers work to weed out the rascals who foisted so many subprime loans on the masses.

Still, with some 40 million Americans already 62 years of age or older, and with 79 million Baby Boomers heading into the senior years, the potential for reverse mortgages is bright. "This is a vastly underserved market," says Bart Johnson, co-chair of the National Reverse Mortgage Lenders Association. "The unmet needs are huge."

For the uninitiated, a reverse loan is intended to enable persons 62 or older to convert part of the equity they have built up in their homes over the years into tax-free income without having to sell the home, give up title or move out.

The name is appropriate because it works backwards. Instead of you paying the lender every month, the lender pays you -- either monthly, in one lump sum or in amounts as you need cash (or in a combination of these choices), ostensibly so senior homeowners can live out their golden years in relative comfort. The amount of money available to you is based on current interest rates, lending limits, the equity you have in your home, your present age and how long you can be expected to live.

No payments are due while the reverse mortgage is outstanding. It is repaid when the borrower (or, in the case of couples, the last remaining spouse) dies, sells the house or no longer occupies it as a principal residence.

The borrower can never owe more than the house is worth, no matter when it is given up and no matter whether its value has gone down since the loan was put on the books. Better yet, if the place sells for more than what is owed on the loan, the excess (after sales commissions and other selling expenses, of course) goes to the borrower's heirs or estate.

Continue reading the full article here