Reverse Mortgage Loan Blog

Reverse mortgages allow senior citizens 62 and older to convert equity in their homes into cash.
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And there are lots of takers. Also known as Home Equity Conversion Mortgages, reverse mortgages have increased more than 1,300 percent between 1999 and 2008.

There’s a considerable upside. A reverse mortgage can provide enough money to live comfortably and, hey, even indulge in a few luxuries. The borrowers can continue to enjoy their homes and receive regular checks or a lump sum.

Income isn’t a factor in getting a loan as the borrower is receiving payments, not making them.

But the downside is significant. Reverse mortgages are expensive, although some curbs have been enacted.

In 2008, the government capped the origination fee at $6,000. Previously,the maximum was 2 percent of either the home value or the FHA loan limit in your county. Translation: homeowners with a property valued at $400,000 will pay $6,000, instead of $8,000. That’s still a big chunk of change.

The costs of a reverse mortgage can be rolled into the loan, meaning there’s interest to be paid on top of those big, fat fees. And let’s not forget the costs of appraisal, title search and insurance, surveys, inspections,recording fees and credit checks. Those will add $2,000-$3,000 more to the tab, according to AARP, an advocacy group for Americans who are 50 and older.

So, why not investigate less costly alternatives? Perhaps take out a low-cost, low-interest home equity loan and simply pay yourself from that?

Why not sell the house and move to a less expensive, more manageable home?

Still, it’s difficult to look at a situation logically when you have lived in a home for many years and have grown accustomed to your surroundings. Add the specter of age and infirmity to the equation and the prospect of staying put and generating some income might look even more attractive.

Deceptive advertising is compounding the situation. Last month, the Government Accountability Office reported it had uncovered misleading claims by the reverse-mortgage industry. The GAO is concerned that elderly homeowners could be roped in by false promises, such as an assurance that the borrowers can never lose their homes.

Truth to tell, the lender can foreclose if the homeowners don’t maintain the house or fall behind in their property taxes. And in New Jersey, where residents are burdened with the highest property taxes in the nation, that’s a very real concern.

If you expect to move in with your kids or transition to an assisted-living facility some day, you will have to repay the loan when you sell your property. The bottom line: You will have less money to invest in a new home.

Before you make your decision, weigh all the options.

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