Be wary of reverse-mortgage spiels

April 13, 2008|By Susan Tompor | Susan Tompor,Detroit Free Press

Seniors don't have to look farther than the TV or their mailboxes to find somebody selling a way to dig out of trouble, or foreclosure, with a reverse mortgage.

And the marketing is going to get more intense.

Big players such as Quicken Loans are moving into reverse mortgages as more baby boomers turn 62 and qualify for these complex home loans.

One service sells hot leads of seniors who are late with mortgage payments. So if you're a senior, brace yourself: Some lender will tell you that your retirement nest egg includes the nest itself.

The reverse mortgage is a loan taken against the equity in the home. Unlike a home equity loan or other loans, the homeowner would not be required to make a monthly payment. Instead, the interest builds and the loan does not have to be repaid until the homeowner moves or dies.

Reverse mortgages are helping some seniors get out of financial binds, but these loans do not come without a cost or catch. The biggest catch: Do you need to pay all those fees to get the money? Or are you being rushed into a quick-fix investment scheme?

"The market conditions are right for the reverse mortgage to become the next big thing," said Tyler Kraemer, a Colorado attorney and expert on reverse mortgages. "The mortgage industry is in a slowdown, and the reverse mortgage presents a huge new opportunity."

About 80 percent of seniors own a home, and many have a large amount of equity in those homes. A study by the National Reverse Mortgage Lenders Association released estimated last summer that homeowners 62 and older had about $4.3 trillion in home equity.

Yet many aging baby boomers will face other struggles.

They have credit-card debt. They are paying more money out of pocket for health care. They are still making monthly mortgage payments. And they are not getting fat pensions.

The strategy is to allow seniors to get cash and keep living in their homes as they age.

How much money you would get to use would depend on the fees, closing costs, the outstanding mortgage on the house or equity loans.

The rules of the reverse-mortgage game require that you pay off existing mortgages first.

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