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'Miracle mortgage' can save a home

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.

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Date published: 5/6/2007