Reverse Mortgage Loan Blog

You’ve seen the commercials touting the benefits of a reverse mortgage, but for many seniors and their families it simply sounds too good to be true.

Is a reverse mortgage the way for you or your parents to get the most out of your golden years?

Ruby Perryman spends her mornings at the Heman Park Community Center in University City, Mo., but admits there are a lot of things she would rather be doing if she had the money.

“I have family in California and I have some in New Jersey. Out of those two places, I’d travel,” said Perryman.

She would also like to do some work on her house.

“The electric work is the main thing I need done. If I could get that taken care of that would be fine,” said Perryman.

Like many seniors, Perryman has built up equity in her home and may be able to use it to her financial advantage with a reverse mortgage.

It may sound too good to be true but banker Andy Perotti, who volunteers with AARP’s speakers bureau, said it could be the perfect way for seniors to make the most of their retirement.

“The reverse mortgage is a unique loan that allows the senior to draw from his home equity on a tax–free basis,” said Perotti.

A reverse mortgage differs from a conventional loan in three key ways: there are no income and minimal credit qualifications, a borrower doesn’t repay the loan until they move out, sell the property or pass away and there’s no monthly mortgage payment.

It may even be an option for seniors who still owe on their homes.

“If you owe a mortgage on your home and you’re making payments on it now, … the lender is going to pay off the existing mortgage that you do have so that you will no longer have a monthly payment to a mortgage company,” said Perotti.

In many ways a reverse mortgage is like a home equity loan. Homeowners are charged interest that’s accruing on the money they use.

The difference is borrowers are not asked to pay back interest monthly with a reverse loan. Financial institutions make their money when the loan is paid off.

“I think the biggest misconception is (that) people feel like they are going to be losing their home, that it’s not going to be their home,” said Perotti. “They retain title to it. It’s still their property.”

The borrower does have to hold up his or her end of the deal. The home must be their primary residence, they must keep taxes current, maintain homeowners insurance and keep the property in good condition.

All reverse mortgages require third-party counseling as a safeguard for seniors.

Perotti said it’s not the type of decision seniors should make without sound advice.

“Is a reverse mortgage right for everyone? Maybe, maybe not,” said Perotti. “I think the person that’s applying for reverse mortgage, or interested in a reverse mortgage, really has to sit down with the lender and determine is this really right for me.”

Perryman feels like it’s an option that’s worth hearing more about and an opportunity to enjoy the life-long investment she’s made.

“I would just love to know that I’ve finally got some money,” said Perryman. “I’d do a lot of things I wanted to do around the home, maybe pitch a little to my kids here and there and I’d just enjoy myself.

The money you get from a reverse mortgage can be used any way you see fit. Benefits and the way they are calculated are different for every person. It depends on your home’s value, your age and current interest rates.

There are some disadvantages to reverse mortgages.

They tend to cost more than traditional loans. The interest is added to the principal each month, so the total amount of interest owed increases significantly with time.

Reverse mortgages use up all or some of the equity in the home, leaving fewer assets for heirs. Lenders can charge closing fees and servicing fees. And interest on reverse mortgages is not deductible on the borrower’s income taxes until the loan is paid off in part or whole.

Because it’s so different for every homeowner, we’ve gathered a large number of resources to help you out.

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What is a Reverse Mortgage?
A reverse mortgage is a unique loan that enables senior homeowners to convert part of the equity in their homes into income without having to sell the home, give up title or take on new monthly mortgage payments. Reverse mortgages are available to individuals 62 or older who own their home.

Reverse Mortgage Qualifications:
# All individuals on the title must be 62 years or older
# Home must be a 1-4 family residence
# Most condominiums are OK
# Manufactured homes are accepted on an approved FHA foundation
# Any existing mortgage loans must be paid off
# Mandatory free counseling session by HUD-approved Housing Counselor

Consumers can obtain a copy of “Home Made Money: A Consumer’s Guide to Reverse Mortgages,” a free guide from the AARP by calling 866-389-5627 or e-mailing moaarp@aarp.org.

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HUD-approved Missouri housing counseling agencies offering reverse mortgage counseling:

Housing Options Provided for the Elderly (HOPE)
314-776-0155

Association of Community Organizations for Reform Now (ACORN):
314-531-6204

National Foundation of Credit Counselors (NFCC):
866-698-6322

Money Management International (MMI):
877-908-2227

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