Reverse Mortgage Loan Blog

Richard Wylie had a reversal of fortune two years ago – but don’t worry, he’s doing better than before.

Wylie, 75, a retired Cape Coral police officer, got a reverse mortgage on his house under a program regulated by the Federal Housing Administration, which insures the loans.

The program, known as HECM (Home Equity Conversion Mortgage), lets people 62 and older get a reverse mortgage that allows them to get a loan for a certain percentage of the equity they have in their homes. As long as they keep the property up and pay the taxes, the loan doesn’t need to be paid back until the last person on the mortgage dies or leaves the house.

Recent changes made by Congress have increased interest in the program by upping the amount people can borrow (the exact maximum increases as someone grows older), said Bronwyn Belling, reverse mortgage specialist with the American Association of Retired Persons Foundation.

But, she said, getting a HECM loan can be tricky and the law requires borrowers to talk to trained counselors to make sure the complicated process is fully understood.

For one thing, she said, with hefty upfront fees, “If you take out a reverse mortgage and only stay in the house for a couple of years it’s a very expensive proposition.”

Also, Belling said, borrowers who suddenly have a large chunk of money available to them need to be reminded that they still have to take care of the house and can’t necessarily just run through the windfall.

Sometimes, she said, people take advantage of naive borrowers by getting them into risky or inappropriate investments.

Wylie said the program worked out well in his case.

“The way I had it set up it paid off my existing mortgage so I didn’t have my mortgage to pay,” effectively increasing his income by $650 a month, he said.

He’s used the extra money to travel and generally enjoy life more, Wylie said, and hasn’t touched the remaining $55,000 he had left over after paying the mortgage. It’s now in a certificate of deposit paying 4.5 percent interest.

Belling said HECM, which accounts for 95 percent of all reverse mortgages, is increasingly popular: the program was created in 1989 but 300,000 of the 500,000 issued have been in the past three years.

But David Johnson of Naples-based Reverse Mortgage Group said actually getting one done in today’s down real estate market can be difficult.

“We’re struggling with appraised values” to get the borrower enough to pay off his mortgage, which often is the goal, he said.

Borrowers often would have been able to get a better deal before prices fell in the housing collapse that has reduced the value of homes, Johnson said. “They should have done a reverse mortgage three or four years ago.”

On the other hand, said Stephanie Kirch of Reverse Mortgage in Naples, borrowers can have bad credit or a recent foreclosure in their past without being disqualified because the loan is paid off when the house is sold. “I look at this as a lifeline, a Get Out of Jail Free card for seniors.”

Belling cautioned that like traditional mortgages, reverse ones carry risks that didn’t exist a few years ago. “Appreciation is an assumption we all had for years and it’s not a good assumption these days. There’s no guarantee you’ll be able to refinance your house years from now and get more money out of the house.”

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