Reverse Mortgage Loan Blog

Pittsburg resident Loris Brown saw an ad on television some time ago and decided that the advertisement was worth looking into.Weeks later Brown, an 82-year-old retiree from Borden Dairy in Kansas City, Mo. found himself with $90,000 to do with whatever he deemed necessary.

That is because the advertisement that Brown saw was for a reverse mortgage.

“It was just a way I could use that money in the home for something if I wanted it,” Brown said. “I put in a new driveway and painted the house,” “I was just on Social Security and a small pension and it has worked alright for me.”

According to reversemortgage.org, “a reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you. Below are some common questions asked by consumers about reverse mortgages.”

Ann Johnson, a mortgage specialist for reverse mortgages with M&I Bank said that reverse mortgages have been around for some time.

“They have actually been around for about 20 years, but they have not really been done in the midwest until recently,” Johnson, who works out of Topeka but handles reverse mortgages for Pittsburg, said.

She said that retirees benefit from reverse mortgages because it gives those people immediate money without the necessity of repayment.

“With a regular home-equity loan, you may borrow out $5,000 but you would have to immediately pay back at about $400 a month, but with a reverse mortgage gives out that equity without immediate payback,” Johnson said.

That was a perfect scenario for Brown, who lives off of Social Security and a small pension from Borden Dairy.

“It is just in an account and if I want it I can call and in a day I can have any amount I want,” Brown said.

He said that of the $90,000 he received from his reverse mortgage, he has about $80,000 left in an account that he can draw from anytime he needs the money.

The repayment of the mortgage comes when the homeowner either dies or moves from the home used for the mortgage.

How it works

Anyone over the age of 62 and a homeowner can qualify for a reverse mortgage.

Even if you have an existing house payment, you can still get a reverse mortgage.

“If you already have a mortgage on the home, and there are a lot of people who do, the first thing we have to do is pay off the lien on the home,” Johnson said. “That will mean that they will not have to make that payment.”

The amount that can be borrowed is determined on the value of the home as well as the age of the applicant.

“The amount you can borrow is very conservative,” Johnson said. “The older you are the more you can borrow.”

For example, if you have a $150,000 home and you were born in 1935, you could borrow up to $93,800 on a reverse mortgage.

Interest does compound on the loan and it is a variable interest rate, meaning that the rate changes from day to day.

“The ending loan balance is totally unknown and we don’t know about the property value will do,” Johnson said. “If the loan is more than the property value, we cannot pursue any other assets.”

Not for everyone

While the concept of a reverse mortgage may seem attractive to those on a fixed income, some in the banking industry suggest using caution when seeking out additional equity.

“You have to take the time to research them,” said Robert Tersinar, vice-president of First National Bank of Girard. “There is a great variance in fees, and it seems like there is a great deal of providers and fees.

“At one time they were considered a very exotic product and they are quite rare,” Tersinar said. “There are some other options that you can visit with your banker about before you decide to do it.”

Johnson said that not everyone seeking a reverse mortgage is fighting financial hardship.

“We see all over the spectrum,” Johnson said. “People have used this for investment and that does make me a little nervous.

“This is not an endless supply of money so you have to be concerned of a really poor person can really pay the loan back.”

One thing to consider is just how long will a homeowner stay in the home they are currently in.

“I think anytime the property could be sold and the person could downsize and they don’t want the headache of a large property,” Tersinar said. “Then it might make more sense to move to a lower cost of living.”

However, a reverse mortgage still comes highly recommended by Brown.

“I would do it with anyone who was in that shape,” Brown said. “It just makes living a lot easier.”

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