Retirement News : Seniors : Reverse Mortgages Gain Favor Among Seniors

Reverse Mortgages Gain Favor Among Seniors

Date Added: 06-06-2005

Glenn Howard, 79, worked for years to pay for his Rogers home, and those years took a toll.

Old, uninsulated windows leaked in cold air and the place had become run down. But by tapping into the growing market of reverse mortgages, he got money to fix the place up and live comfortably.

"It allowed me to stay in my home," Howard said.

Americans have been slow to buy into reverse mortgages -- only 37,829 such federally insured mortgages closed in fiscal year 2004. Of that number, 117 were in Arkansas.

 
But the trend is growing. That 2004 number for nationwide reverse mortgages is more than double the number of such loans closed in 2003.

"People don't know about reverse mortgages," said Robert Whitehorn, a reverse-mortgage consultant for Wells Fargo in Rogers.

Reverse mortgages allow homeowners aged 62 and older who own their home, or owe very little against it, the opportunity to borrow money against that home.

Unlike their more common cousin, the home-equity loan, reverse mortgages do not require repayment until the homeowner no longer lives in the home. Interest rates on reverse mortgages are currently low, 4.82 percent as of last week, and fluctuate in relation to the government's treasury bill rate, plus 1.5 percent interest.

The federal program began in 1988 with the first loans made in 1990 and is operated through the government's Department of Housing and Urban Development.

The amount a homeowner can borrow depends largely upon the home's value and the borrower's age. The older the homeowner, the more money that person may borrow. Closing costs are dictated through the government and usually amount to around 3.5 percent of the home's value.

Darryl Hicks, associate director of the National Reverse Mortgage Lenders Association in Washington D.C., said older Americans are beginning to realize the advantage of the concept.

"It is still a small niche in the mortgage market but it is growing," Hicks said. "I think it is one of the best programs ever created, because I have seen dozens and dozens of seniors struggling with 'How am I going to fix my roof? How am I going to fix my plumbing?'"

Carl Knox, a reverse-mortgage consultant for Wells Fargo in Rogers, said he has seen instances where reverse mortgages were used to pay property taxes, averting loss of the home. Credit card bills, medical debt and vacations can be paid for with the money, he said.

"They can do things again," Knox said. "They can help their grandkids. They can take a cruise."

Wells Fargo is the nation's largest reverse mortgage lender and the only such lender with a local office in Northwest Arkansas. The company processed 17,335 such mortgages in calendar year 2004, according to a company report.

Most banks are hesitant to enter the market, largely because of the low number of such loans and because it is not a cut-and-dried financial deal for the lender. Knox said banks don't like the uncertainty of a mortgage that has no set payoff date.

Hicks said that trend may change as more Baby Boomers age and more banks see an increase in reverse mortgage numbers.

"Many of today's seniors have an aversion to taking on debt," Hicks said. "They don't realize they don't have to pay back the loan until they move out of the home. We are already seeing more interest on the part of banks. I think (banks) realize that once Baby Boomers reach retirement there will be an" increase in reverse mortgages. "This thing is going to take off."

One possible disadvantage to reverse mortgages is that heirs may not receive as much upon the homeowner's death. The loan must be paid by the estate. But reverse mortgages do not mean that the home will be the property of the lender. It simply means there is a loan against the property.

The amount that can be loaned against a home is considerably less than the home's total value, which guards against a homeowner ending up with more debt than the home's value. In addition, reverse mortgage loans can be paid out weekly, monthly or in a lump sums. The line of credit created through the mortgage also provides a growth factor for the borrower. That means the unused portion of that credit line actually increases with time.

"You just need to pay a mind to what you are doing," said Marvin Lyles of Rogers, who took out a reverse mortgage on his home, his second such loan. "It works good if you properly use it."

For More Information:

http://www.nwaonline.net/articles/2005/06/05/business/02reversemortgages.txt