Considering A Reverse Mortgage

May 15th, 2009 @ 5:11 PM by Alden Smith

People tend to get creative in times of trouble.  The last couple of years have been a real nightmare financially for a lot of people.  There is every indication that is only going to get worse.  Chrysler and  GM have slashed a record number of dealerships, putting a record number of people out of work.  I’d like to turn on the evening news some night, and get a little good news for a change.  I don’t see that happening for a while.

One way that people are bailing themselves out right now is by taking out a reverse mortgage on their home.  Although this will not work for people under the age of 62, we have to remember that there are a lot of retiring baby boomers that fit the mold.  The beauty of a reverse mortgage is that a person entering into this contract doesn’t have to sell their home, give up the title or take on a new monthly mortgage payment.  When a person getting a reverse mortgage leaves the home, the property reverts back to the lender to pay off the loan.

An interesting article on the Star-Telegram.com website tells the story of a gentleman that was recently laid off and is using a reverse mortgage to protect his home from being foreclosed on. John Thomas was recently laid off, and faced two issues – he has  a health related problem and he wanted to be able to make his mortgage payment.  A reverse mortgage solves this problem.  Reverse mortgages have been around for quite a while, but have been underutilized according to Scott Norman, president of the Texas Association of Reverse Mortgage Lenders.  Last year, only 7,000 reverse mortgages were generated.

A reverse mortgage makes sense for people to qualify.  When the loan is originated, the lender gives the homeowner equity built up in the house to pay off the remainder of the original mortgage.  This is a reverse mortgage requirement.  The first loan is retired, giving the new lender first lien on the property.  Monthly payments drop drastically, from monthly payments that are very high downto payments that cover the escrow requirement for taxes and insurance.

It should be noted that a reverse mortgage isn’t cheap.  Not only do you pay typical closing costs, such as origination fee, title, appraisal and inspections, but there are also specific fees, such as a monthly service charge.

A reverse mortgage certainly isn’t for everyone.  People with a mortgage that is underwater have no chance of getting one.  But, if you are 62 or older, have a lot of equity in your home, and you find yourself in tough economic times like Mr. Thomas, take a good look at reverse mortgages.