Reverse Mortgage Loan Blog

It’s estimated that every day over the next 20 years at least 10,000 Americans will turn 62, according to Joe Salpietra, owner of Star Mortgage Inc. in Newburgh.

The statistic, he said, interests him; he believes his business could indirectly benefit from it.

He said he expects some of the birthday celebrators will help grow his number of reverse-mortgage clients.

A reverse mortgage is a loan available to people 62 and older to release equity in their property as one lump sum or in multiple payments. The applicant typically has paid off his mortgage or has only a small mortgage balance remaining.

The homeowner’s obligation to repay the reverse mortgage is deferred until the owner dies, the home is sold or the owner leaves for, say, an aged-care facility.

The concept was first introduced by the Federal Housing Authority several decades ago, but then the federal agency would only insure up to 2,500 of the loans in the entire nation.

Since then mostly mortgage companies, not banks, in the Tri-State have begun to offer the reverse mortgage.

Last year, 113,000 of the mortgages closed nationwide, said Salpietra.

Though people have seen actors Robert Wagner and James Garner in TV commercials talking about the reverse mortgage, most of them don’t grasp the concept and haven’t taken one of the loans.

Salpietra said he has noticed the reverse mortgage has gained popularity among some Tri-State residents over the past three to four years, however.

“I have done probably two dozen of the loans over the last two years,” he said.

Shannon Bartnick, owner of Mortgage Masters on Evansville’s East Side, said “I have not closed on one reverse mortgage ever, though there are lots of people who inquire about them.”

“The sad part is most people don’t understand the program and, therefore, are afraid of it,” Salpietra said.

He advised that people talk with a professional in reverse mortgages.

“Sometimes it takes several conversations before the senior person understands the loan,” Salpietra said.

Bartnick said she believes the reverse mortgage would be most beneficial to a person who owns his home and wants to take some monthly income to offset expenses or to pay off debt.

Otherwise, depending on the amount of equity a person has in his home and his life expectancy, as determined by different sets of actuary estimates, the loan amount is typically conservative, she said.

The person who has his house paid for can typically access up to 50 percent of its value through a reverse mortgage.

The action could diminish the amount of future inheritance for the person’s heirs, but it could allow the homeowner to continue to live in his home, she said.

By increasing the amount of income through the loan, hopefully the senior citizen’s lifestyle will improve, said Salpietra.

“Or, he could not take the loan and sit and struggle and die in a house that is free and clear (paid for),” he said.

According to Salpietra, a senior citizen can be behind on his mortgage payments and - if he has enough equity in the property - can get a reverse mortgage to pay off the loan, even if it is in foreclosure.

“That then would save his house and allow him to live in it until he dies,” he said.

Most reverse mortgage notes allow for up to 30 days for putting a house up for sale. And, it generally allows for up to six months to get the house sold, Salpietra said.

After six months it is a case-by-case basis with each customer and lender to determine if the period may be extended, he said. If a house doesn’t sell within a reasonable time, the lender can foreclose to get the balance paid, Salpietra.

He said the costs and fees for getting a reverse mortgage sometimes are higher than those of a regular mortgage.

Salpietra said the costs and fees on the reverse mortgage are set by the government. “So it costs the same no matter which company the client uses to get the loan,” he said.

Doug Diekmann, president of Farmers State Bank in Evansville and Warrick County, said he understands the need for the reverse mortgage.

“People have their primary equity tied up in their home and a reverse mortgage can provide them with a way to receive income,” he said.

He said a downside is the program may play odds with a person’s presumed age of death - via actuary tables - depending on how the loan is structured.

Farmers State Bank doesn’t offer the reverse mortgage because of the plans’ many variations that make bank officials feel uncomfortable, Diekmann said.

“True, the lender will hold up to its word to pay the income in a reverse mortgage. Rest assured, the bank holds the cards if the property owner dies,” he said.

“That is another reason we don’t offer the loans. We don’t want to push small people around,” Diekmann said.

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