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'Miracle mortgage' can save a home
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Reverse mortgages are becoming popular with the elderly who want to stay in their homes
BY CATHY JETT
Date published: 5/6/2007
BY CATHY JETT
Reverse-mortgage specialist Gary Onks' elderly client was at the end of his rope. After paying bills, the man had less than $70 a month to live on.
Luckily, he was also living in an untapped source of revenue--his house. Drawing down the equity through a reverse mortgage would allow him to pay off his first mortgage and live there comfortably until he or his heirs decided to sell it.
"The Austin Business Journal has called it the 'miracle mortgage,'" said Onks, who works for Financial Freedom in Fredericksburg. "To seniors, it is a miracle because they can stay in their homes. There are no payments to make, they have peace of mind about where they're going to live and they have quality of life."
Reverse mortgages have been around since the American Association of Retired Persons urged the federal government to authorize them 20 years ago as a way for seniors to stay in their homes as long as possible.
But the once little-known financial product didn't really catch on until three years ago--and it has been steadily gaining in popularity ever since. Last year alone, 76,351 federally insured home equity conversion mortgages, which make up 95 percent of all reverse mortgages, were approved, compared with 18,097 in 2003.
"HECMs have reached a tipping point, so bigger competitors are entering the field," said Bronwyn Belling of AARP's economic security department. "Some have introduced products at a half-percent-lower interest rate. Having more players is helping to drive down costs."
A reverse mortgage is just what the name implies: a loan that pays out instead of requiring people to pay in. Applicants must be age 62 or older, own their house and use it as their principal residence most of the year.
The amount of cash they can get depends on their age, current interest rates and their home's value. And the money can be paid in one of four ways:
A single lump sum
Monthly installments
As a line of credit
As a combination of any of those three.
Although there are no monthly mortgage payments, the loan and any interest come due when the borrower sells the house; when the survivor of the borrower moves and no longer uses the home as a primary residence; or when the survivor dies. Any loan balance that exceeds the appraised value of the house at that time does not have to be paid back.
"There is no way you can lose your house as long as you continue paying property taxes and insurance," said Darryl Hicks, spokesman for the Washington-based National Reverse Mortgage Lenders Association.
There are, of course, up-front costs involved, including an origination fee, closing costs, mortgage insurance premiums and a monthly servicing fee.
Date published: 5/6/2007
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