Reverse Mortgage Loan Blog

Young families aren’t the only ones who might find themselves strapped for cash and wondering where their next house payment might come from. There have been a lot of older folks who decided the housing market was so open that they would take advantage of the good rates and easy money tied to reverse mortgages and just stay in their homes rather than move into more expensive housing. A good number of these elders are now caught in the crunch and are looking for solutions.

The popularity of the reverse mortgage is soaring. These loans are very complex, and several factors need to be considered before any senior rushes to sign on. The best thing to do is look for alternatives. In many cases, homeowners are better off downsizing to a less expensive dwelling or just taking out a conventional loan if that is available.

Reverse mortgages are available to homeowners age 62 and older and allow these clients to use their home equity without having to meet income requirements, sell their house or monthly payments. As home values decline, traditional home equity credit lines become increasingly difficult to get, especially with tightening underwriting standards, so a reverse mortgage can be something of a lifesaver for cash-strapped seniors. Payouts can be made in a lump sum, monthly or through a line of credit, and the loan isn’t due until the homeowners sell or die.

Anyone considering this kind of mortgage must be fully aware that upfront fees often equal 5 percent of the loan amount. Before you sign on, take a deep breath and consider how you are going to use the money and whether a reverse mortgage is really your best solution.

Reverse mortgages only make sense if there is an expectation that the client will stay put at least seven years. Before anyone signs on to this plan, they also need to be fully aware that the loan amount will grow larger the longer the owner stays in the home. It is never possible to owe more than the house is actually worth, but the debt can grow to equal the entire value of the house. This, of course, means the bank or lending agency will own the house and the owner has effectively sold them the property.

Anne Kates Smith notes in “Kiplinger’s Personal Finance,” “As the reverse mortgage industry grows, there are ‘eerie parallels to the subprime mess roiling the country.’ ” Seniors looking for help from reverse mortgages could be easy prey for some very misleading marketing or high-pressure sales tactics from those selling investment and insurance products. The National Reverse Mortgage Lenders Association recently has seen “subprime players coming into our market,” warns association President Peter Bell. He also says these speculators are really “fringe players,” not legitimate members of the reverse mortgage industry.

When you find yourself looking with longing at a friend’s fancy vacation or travel plans and their talk about living while they can, think carefully before you put yourself on the line for something that can mean a complete commitment to selling your home on a monthly basis. Sometimes the motivation comes from a desire to help the children or grandchildren. Stop and think about the fact that your home is probably your most valuable possession. If it really is the right decision for you, go ahead with good cheer, but understand exactly where you might be headed and why.

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