Posted on: Sunday, April 18, 2004
Seniors fueling leap in reverse mortgages, despite costs
By Christine L. Romero
Arizona Republic
| • | Only elderly qualify
To qualify for a reverse mortgage, the National Reverse Mortgage Lenders Association says you must: • Be at least 62 years old. For a couple or co-owners, both must be 62 if their names appear on the title to the home. If one spouse or co-owner is under 62, that person's name must be removed from the title. • Have equity in the house. Some homeowners qualify even if there is an outstanding balance on the first mortgage. • Own a single-family home, qualified condominium, townhouse, manufactured home or one- to four-family owner- occupied residences. • Occupy the home as a principal residence. • Go through a counseling session to make sure you understand the process and to see if there are other possible options for increasing cash flow. Details: www.reversemortgage.org or (866) 264-4466. — The Arizona Republic |
 |
|
The volume of federally backed reverse mortgages more than doubled to 12,848 nationally between October and February, compared with the year-earlier period.
Although the pace seems staggering, that's still a small slice of the overall mortgage market.
Reverse mortgages, which have been around since 1984, are taking time to gain full strength because these loans, known as home-equity conversion mortgages, require a reversal in thinking.
They allow homeowners to get loans that deliver money from the property's equity on a line of credit or in monthly or lump sums. Instead of paying the lender, the company pays the homeowner.
Homeowners owe interest on what they borrow, but they don't have to repay the loan until they move, sell or die.
If the home depreciates, the government takes the hit instead of the homeowner or heirs. The loans are backed by the Federal Housing Administration.
Some financial planning experts warn of high closing costs and caution that reverse mortgages don't make sense for everyone.
"Classic financial planning says if you are in a negative cash-flow position, there are other problems that need to be addressed," said certified financial planner Michael Black of Scottsdale, Ariz.
Cash-strapped seniors facing soaring medical costs, for example, should consider other methods for cutting spending first, Black said.
But Dorothy Liles isn't complaining. The 81-year-old east Mesa, Ariz., resident opted to be free of her monthly mortgage. She gets Social Security payments and believes her monthly finances would be overly tight if she had a house payment. "It would be really tough. I just pay my taxes and insurance," Liles said. "I have a whole new lease on life. It's wonderful."
On a federally backed reverse mortgage, homeowners pay an FHA insurance premium amounting to 2 percent of the home's value, and another 2 percent for items such as the escrow fee, origination fee, title insurance and home appraisal. Most of the fees are added to the loan balance.
It is estimated that reverse-mortgage volume will increase by 25 percent annually as baby boomers hit retirement age, said Jeffery Taylor, Wells Fargo & Co. vice president for senior products.
He cautions that reverse mortgages are best for people who plan to stay in their home for at least three years, given the closing costs.
"You cannot compare a reverse mortgage to a regular mortgage," Taylor said. "I view a reverse mortgage as a Social Security guarantee."
