A loan tailored to elderly Payback: Reverse mortgages are becoming more popular among retirees, allowing elderly homeowners to use the equity in their homes without having to leave them.

November 01, 1998|By Charles Belfoure | Charles Belfoure,SPECIAL TO THE SUN

The home is the castle. The rock. Something not to be put into jeopardy. For many older homeowners, after mailing in 30 years of monthly mortgage payments and paying off a house, the last thing that they want to hear about is a mortgage.

But more and more older Americans are finding that a relatively new product -- the reverse mortgage -- is allowing them to use their home to increase their quality of life and, in some cases, help them overcome financial strains.

"I didn't want a cruise, that's not for me, but I love my house," said Elizabeth Tanner, 84, of Glen Burnie. So she applied for a reverse mortgage and, with the money, she was able to make much needed repairs on her home of 47 years. "You get attached to a place and you know, you feel better when you're living in a house where you've been so long."

Almost 85 percent of America's elderly own their homes free and clear of any debt. With a reverse mortgage, they can access the equity they've built up over the years.

It's the opposite of a conventional mortgage in which the borrower repays the lender in monthly installments over a set period of time.

Instead, the lender pays the borrower for as long as he or she lives in that home. It's only after the borrower dies, moves, or sells that the loan must be repaid.

With the number of elderly Americans expected to increase from 33.5 million in 1995 to 61.9 million in 2025, financial analysts expect that the reverse mortgage will be become as commonplace as its conventional cousin is today.

"It will make a dramatic change in the retirement lifestyle of senior citizens," says Mercy Jimenez, a Fannie Mae vice president specializing in loan products for the the elderly. "No other financial tool I can think of will touch the life of people as a reverse mortgage will."

Jimenez predicts that there will be more than 1 million potential reverse mortgage buyers in the next five years.

A reverse mortgage is designed to enable senior citizens, 62 and older, to stay in their homes and strengthen their financial independence in retirement. They can receive the proceeds of the loan in basically three ways: a lump-sum payment, a line of credit or fixed monthly payments for life. The money is tax free and can be used any way the borrower wants.

The loan can never exceed the value of the house. Borrowers get a percentage of the equity based on their age and the value of their home.

It's very different from a home equity loan, which not only requires equity in the home, but also certain income requirements, plus immediate repayment. There are no income requirements for a reverse mortgage, but the house should be free of debt or have only a very small mortgage balance.

"The two main requirements are the applicant's age and the value of the house," Jimenez said. Single-family homes are eligible. Some programs accept condominiums and owner occupied multifamily homes.

Reverse mortgages can serve older homeowners in a number of different ways.

"One group consists of people in dire financial straits, they've been ill and spent a lot on health care," said George Conover of Owings Mills-based International Mortgage Corp. "They've maxed-out their home equity loan and credit cards and are in the position of losing their house."

Homes nearly lost

Conover estimates that he has helped about 100 people keep their homes since 1989, when he first started working with reverse mortgages. "A husband will pass away, so the widow will lose his share of the Social Security allotment. Then she can't pay the bills any longer and could lose the house," Conover said.

"The money is often used for in-house health care so seniors don't have to go into a nursing home," said Patricia Wills of Unity Mortgage in Columbia. "By hiring in-home nursing, they can stay in their own homes." The proceeds of a reverse mortgage can relieve the burden of health costs on the borrower and also on their children.

Reverse mortgages increasingly are being used for home improvements, according to a Fannie Mae survey.

Ninety-year-old Mary Hamilton used $25,000 for a new driveway and to pay off a home equity loan that she had taken out to put a new roof on her Glen Burnie home.

"Instead of letting the house run down, I wanted to keep it," Hamilton said.

The expense and stress of maintaining a home that was bought 30 years ago is one of the main reasons the elderly have to sell their homes and leave their neighborhoods, something that Hamilton and Tanner are loath to do. A poll by the American Association of Retired Persons (AARP)found that 85 percent of the elderly would prefer "to age in place" where they live.

There's a segment that uses reverse mortgages to upgrade their lifestyle in a manner that wouldn't be financially possible on their retirement income. It could be for small things such as gifts for their grandchildren or a cruise they always wanted to take.

Better income

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