Lately, seniors have asked me to investigate reverse mortgages. They’ve seen the television commercials with happy people, traveling and enjoying the high life. They want to know is there a catch?
It’s like anything else — you’ve got to do your homework and figure out what’s right for you.
Reverse mortgage means debt. You can either get a lump sum payment, regular installments, or a line of credit. But remember, when you move out of your home or you die, you or your heirs must pay back that money with interest.
Proponents of reverse mortgages say nothing’s due until you leave your home. That’s true, but no one knows exactly when that will be or under what circumstances. If you need to move to an assisted living center, you must pay off the reverse mortgage at the same time you figure in the cost of the living center.
Virginia Berry, who’s been selling reverse mortgages for 17 years in Colorado Springs, Colo., says it’s a great product fully insured by the federal government. She says, “FHA and HUD wouldn’t play in that arena if they were bad.”
Berry says the process is complicated, time-consuming and comes with a lot of paperwork. But she believes with increased federal regulations, it’s hard for seniors to get cheated. In fact, she says before seniors can fill out an application, they must have third-party HUD counseling. It’s required.
She recommends those who are interested in a reverse mortgage meet with someone in person, not a salesperson over the phone.
She also points out there are vast differences in prices. She says national companies charge more in fees because they don’t use local title companies. “My fees are probably $500 to $800 cheaper because they charge you for things you don’t use, like abstracts.”
Berry also says on April 27, reverse mortgage rules will change, making it harder for folks to qualify. She says, “Right now I don’t care if you’re rich or poor or have good or bad credit.” But after April 27, some who qualify now may not because they won’t be “creditworthy.”
She shared a recent scenario for a reverse mortgage customer in Monument, Colo., who needs a new roof. The customer, in her 60s, was denied a loan by her bank because she’s a widow, retired, with no income but Social Security. She qualified for a $190,000 line of credit and can now use $35,000 to pay for the roof.
The remainder, $155,000 is there in case she needs it. If she never uses it again, she’ll just have to pay back the $35,000 with interest when she leaves her home.
Talk it over with your family or a trusted adviser and make sure reverse works for you.
