Reverse mortgage can soothe lives

Elderly homeowners have an asset that will provide regular income

February 02, 2003|By Patricia V. Rivera | Patricia V. Rivera,SPECIAL TO THE SUN

Charles and Dolores Kane are breathing a little easier these days.

Not long ago, the Baltimore couple felt suffocated by their stagnant retirement income and worried about making ends meet.

"I though we'd never be able to pay off our Visa bill," Dolores Kane, 75, recalls.

Then she read about a type of loan that allows seniors to access the wealth they've accumulated in their home.

More seniors such as the Kanes are turning to the once little-known reverse mortgage, which enables a homeowner to convert home equity into monthly income.

Banks lend senior citizens the equity in their home after charging them points and fees, and the money is not paid back until the homeowner sells the house or dies.

A record 13,049 federally insured reverse mortgages were made in the government's fiscal year 2002, which ended Sept. 30. That's a 63 percent increase over the previous record of 7,982 reverse mortgages in 1999, according to reports released by the Washington-based National Reverse Mortgage Lenders Association.

"With the stock market boom over and interest rates down, many seniors are getting financially squeezed these days," said Peter Bell, president of the trade group.

Advocates said the effort gives senior citizens access to the money they have built up in their home. But some financial experts tell seniors to choose the programs carefully. The loan could deplete the equity in a home and leave a homeowner with little cash should they need to sell the house for any reason.

A reverse mortgage is a loan against a home that does not have to be paid back as long as the owner lives there. The older the borrower and the more expensive the home, the higher the loan amount, experts said. All borrowers must be at least 62 years old to be eligible for most reverse mortgages.

Borrowers can receive their loans in a lump sum, in monthly payments, from a line of credit or from a combination of sources.

Frank Fischer, a counselor at St. Ambrose Housing Aid Center in Baltimore, said reverse mortgages can work well for certain people, although they aren't for everyone.

"It's a good program for people who are wedded to the house and have no desire to get out of it and they're having a hard time keeping it," Fischer said. "But we try to see if there is some other way to solve the situation that they're in before they use this program."

Seniors will be able to qualify for larger reverse mortgages this year because of higher loan limits adopted by the federal government. And the combination of low interest rates and rising home values also is expected to draw even more borrowers.

"At one point, reverse mortgages were considered a last resort for the cash-poor. But that's changed now with the downturn in the last 18 months," said Larry Larsen, manager of reverse mortgage lending at Fidelity & Trust Mortgage Inc., headquartered in Chevy Chase.

Older adults who may have been living off interest from their savings or the dividends from stocks have found themselves with less disposable income, Larson said.

It's no longer as feasible to liquidate other assets, so they turn to their homes, he added.

Lenders say recent economic events also have alleviated some of the stigma once attached to reverse mortgages.

"For a long time, seniors really worried about not being able to leave anything for their children if they took out a reverse mortgage," said Patricia Wills, sales manager at Financial Freedom Senior Funding Corp. in Woodstock. The group is a subsidiary of Lehman Brothers Bank.

Wills said adult children often call now to inquire about the loans. It often is a relief to them that their parents are able to take care of their own needs, she said.

Reverse mortgages are complex loans and specialists said those interested should carefully compare the costs and benefits.

Groups such as the National Reverse Mortgage Lenders Association and AARP offer consumer guides through their Web sites.

The AARP defines the following as the three major reverse mortgages:

Single purpose: Can be used for a specific need. They are not available in all areas and many are not open to homeowners with higher incomes.

Federally insured: Also known as home equity conversion mortgages, they can be used for any purpose, and are available throughout the United States to homeowners who are at least 62 years old.

Proprietary reverse mortgages: Are almost always the most expensive type of reverse mortgage. They generally provide larger loan-advance amounts but only if a home is worth a lot more than the average home value where the home is located.

The home equity conversion mortgage is the most popular reverse mortgage product, accounting for 90 percent to 95 percent of the reverse mortgages made, according to the reverse mortgage trade group.

Dolores Kane found a loan through Wells Fargo Home Mortgage Inc. Her niece, Diana Kerner, helped her better understand the paperwork.

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