Reverse mortgages sound tempting if you are over 62-years-old and need money.
A reverse mortgage allows you to use your house as piggy bank and borrow the money that you have built up in equity over the years that you’ve owned the home. But many consumer advocates think this is a dangerous way to use your real estate nest egg.
Many lenders no longer offer reverse mortgage. Yet if you need the money, and you feel comfortable with the terms, it might work out for you.
- You must be at least 62-years-old
- You must have paid off your mortgage
- Or have a small amount remaining
HOW IT WORKS
Essentially, a reverse mortgage means the bank lends you your money. But the money they lend eliminates the capital that you have invested in the home.
FHA REVERSE MORTGAGE
The FHA, part of the federal Housing and Housing and Urban Development Administration or HUD, has a reverse mortgage program and government officials suggest that it’s useful. Manny Alvarado a HUD housing specialist explains, “The older you are, the more you can borrow. You can get 50, 60 and up to 70 percent in some cases, depending upon how much equity you have.”
FHA reverse mortgages offer some protection if the price of your home falls. HUD’s Alvarado says, “A lot of the values on properties have gone down. With FHA we will insure that loan for the original amount that was made to the lender.”
You can find details about an FHA-insured reverse mortgage at http://www.fha.com/fha_reverse.cfm.
CONCERNS ABOUT HEIRS
Yet it is reasonable to worry about your heirs and question whether they will lose out. In some cases, heirs have the opportunity to repay the money. “If your children take over the house when you pass away, their only obligation is to get financing to pay off the reverse mortgage,” Alvarado says.
But if you’ve taken a great deal of money out, it’s possible that your heirs will lose the property. If there isn’t enough equity still in the home, the lender takes it.
Costly reverse mortgage fees are another negative because they take a big chunk of your money.
Kenneth R. Totten, Vice President and Chief Lending Officer of Metuchen Savings Bank in New Jersey, says, “Fees can range anywhere from $8,000 to $16,000. Consumer advocacy groups are concerned that lenders take advantage of people who need money and use their homes for reverse mortgages. And there have been predatory fees associated with those types of mortgages.”
If you decide to get a reverse mortgage, it’s very important to pay attention to all of the details. Learn about the fees and what you might lose before you sign up.
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Recently 92-year-old Jeanette Ogle, a widow in Lake Havasu City, Arizona faced losing her home in a foreclosure auction. The rules of the reverse mortgage allowed the foreclosure because her deceased husband’s name was on the mortgage and her name wasn’t. But Arizona Attorney General Tom Horn, AARP and the Consumer Financial Protection Bureau stepped in to advocate for her and the lender backed off.