Reverse Mortgage Loan Blog

Many Baby Boomer homeowners face a dilemma: Their income is too low to qualify for refinancing of their mortgage loan, but they want to stay in their homes. And property taxes and other monthly costs are eating a hole in their savings.

Enter reverse mortgages. These loans allow homeowners 62 and older to borrow against the equity they’ve built, tax-free. They provide monthly income. And they don’t have to be repaid until death, sale of the home or relocation.

“It’s a way to tap into their equity and use the money for any purpose they want,” said Bonnie Oliver, branch manager at Universal Mortgage Corp. in Onalaska, Wis.

Universal’s agents are being trained on the loans this week and will start issuing them next week, Oliver said. Only one other mortgage lender, Wells Fargo, issues them so far, but the loans are becoming much more popular in Wisconsin and the rest of the country.

In 2001, just 7,793 people nationally took out a home equity conversion mortgage, the most popular type of reverse mortgage. By fiscal year 2007, the number had skyrocketed to 107,558.

Wisconsin had 934 reverse mortgages taken out in fiscal year 2007 that ended Sept. 30, nearly double the 473 written the previous year, said Debora Blume of Wells Fargo Home Mortgage.

Local numbers aren’t available because the option isn’t widely offered, but industry experts expect a surge in growth here, too.

“There’s just a real need in our area,” Oliver said. “A lot of people can be helped in a lot of different ways.”

Some common questions about reverse mortgages include:

Q. How do these differ from traditional mortgages?

A. In traditional mortgages, you pay down your debt. With reverse mortgages, you get paid by your bank using accumulated equity. In traditional mortgages, your debt falls and your equity rises. In reverse mortgages, your debt rises and your equity falls.

Q. Who qualifies?

A. Any homeowner 62 or older who has paid off all or most of the original mortgage loan. There aren’t credit or income requirements. However, all prospective borrowers are required to go through financial counseling as part of the application process.

Q. Are there start-up costs?

A. Yes. The costs vary depending on the terms and type of reverse mortgage. However, they’re deferred until payoff.

Q. Do they provide monthly income?

A. Yes.

Q. How much could I borrow?

A. It depends on the loan, but the loans generally are given for something less than 100 percent of available equity.

Q. What’s the interest rate for the loan?

A. It depends on the loan terms.

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