The Case For Reverse Mortgages

Feb 2nd, 2008 @ 9:15 AM by Alden Smith

Reverse mortgages are nothing new. They’ve been around a long time, and it is now a reality that lenders are taking a closer look at this as profits fall from the sub prime market. Many older Americans aren’t aware of the cost of a reverse mortgage, and it appears the unethical lenders are taking advantage of that.

According to the FHA, in 2000 6,637 reverse mortgages were approved. Jump to 2007, where 107,367 were approved. In just 6 short years, the number of reverse mortgages approved is staggering.

Over the past 20 years, almost all of these mortgages were offered by the federally insured Home Equity Conversion Mortgage program to people 62 years of age and older. It was a good deal for people needing extra cash for expenses or medical bills. Now, however, some lenders are offering private reverse mortgages to people as young as 60, and government officials are becoming concerned. With the falling values of homes during this current mortgage meltdown, elders are going to end up on the bad end of the deal, because equity in their homes will be gone, and if they face the inevitable medical emergency, they will be out of resources.

The AARP has set up guidelines for people considering a reverse mortgage. They are:

1. Do you really need a reverse mortgage? If you are
considering one just to take that dream vacation when you
retire, then give it close thought. You need to be
prepared for any real emergency that comes up.

2. Are there less costly options? If you can make the
monthly payments on a line of credit loan or a home
equity loan, you are better off, especially if you
are using the money for something that is not a
necessity.

3. Can you afford a reverse mortgage? Reverse mortgages
have high upfront costs. If you take out this mortgage
at a younger age, say 62, the long term interest grows
proportionally, and you end up owing a bundle. And, if
you decide to move in a year or two, the costs will eat
up anything you have gained.

4. Can you afford to start using home equity now? If
you take out your equity now, what happens when an
emergency arrives? With the value of homes dropping
as they are, equity goes along with it. In later
years when you really need this money for emergencies,
it will be gone.

5. Do you fully understand how the reverse mortgage
works? If not, better seek counseling. Fully
understand what you are getting into before you
take the plunge.

I am in no way bad mouthing reverse mortgages. But when I see the numbers rising, and read cautionary tales in articles written by those in the know, I take pause. If considering a reverse mortgage, be sure you understand what you are getting into. That way, there won’t be a big surprise down the road.

One Response to “The Case For Reverse Mortgages”

1. Phillip Doucet says:

   March 30, 2008 at 8:28 pm

   Hello, I wanted to say something about reverse mortgages. I have a home in California, and

   now have this type of mortgage. Given the limited amount of income from social security, and

   only a modest pension, my wife and I were having trouble to make house payments on top of

   all of the other expenses coming in every month. Although our children are willing to help

   out, I wanted to hold my own security in my own hands. Even though prices are now falling,

   the equity in our home has increased greatly over the years and getting a reverse mortgage

   made sense for us. Now, we will never have to worry about losing our home, and even have

   more money given every month, until our last days. I greatly recommend that you talk to

   someone about this option. Like the broker that we spoke with: Living in Reverse
   who was very helpful to explain the whole process, and not try to do a fraud or scam with

   us. Well, good luck to eveyone..I hope that you too will find comfort and keep your homes

   no matter what the market may say -phillip