Reverse Mortgage Loan Blog

When 75-year-old Susie Clingan, of Springfield, needed an additional source of steady income in 2006 to meet higher costs of living, she turned to her most valuable possession: her home.

Clingan took out a reverse mortgage from BancorpSouth, and though she declined to discuss actual figures, she appreciates the help with her budget.

“I don’t know what I’d do if I wasn’t receiving that money now,” she said. “I thought for sure I was going to have to give up something dear – and that was before I saw what gas was going to cost.”

With the shaky state of the economy – foreclosures were up 112 percent nationwide compared to a year ago, according to RealtyTrac, while consumer confidence is at a five-year low – many older homeowners are using home equity conversion mortgages, also called reverse mortgages, for income.

The idea behind a reverse mortgage is to allow homeowners who are at least 62 years old to tap into their home equity through a loan that doesn’t have to be repaid until the homeowner dies or the house is sold.

Jeff Taylor, vice president and program manager for Wells Fargo Senior Products Group, said reverse mortgages can improve seniors’ quality of life without creating additional payment obligations.

“They convert part of the equity in their home into tax-free income without having to sell the home, give up title or take on new monthly mortgage payments,” Taylor said. “The money from a reverse mortgage then can provide senior homeowners with financial security they need to fully enjoy their retirement years.”

The amount of funds for which borrowers are eligible depends on age – or the age of the youngest spouse in the case of couples – the appraised home value and interest rates. In general, the older the borrower and the more valuable the home, and the less owed on it, the more money is available.

With reverse mortgages, homeowners have to pay off any liens, including traditional mortgages, on their homes before collecting reverse mortgage money.

Taylor said borrowers have several options when it comes to collecting their loan money – from a lump sum, which could be used to pay off an existing mortgage and free up the money previously used to make mortgage payments, to a standing line of credit to access money when needed, to monthly income for a set number of years or for life.

Lenders say it’s difficult to generalize who is a good candidate for a reverse mortgage and who should consider other options, which is why all seniors considering a reverse mortgage are required to complete a free counseling session with a counselor approved by the U.S. Department of Housing and Urban Development.

“The largest misconception is that when the borrowers die, the bank gets the house. That’s not true at all,” said Brent Woody, a reverse mortgage specialist with BancorpSouth. “Most people interested in reverse mortgages have lived in their house for a long time, have it paid for or have a lot of equity, and are no longer able to meet their obligations.”

When the homeowner dies, Woody said, the owner’s estate pays off the reverse mortgage, either by selling it, refinancing it or raising money from some other source.

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