by Barbara Nevins Taylor
Getting a reverse mortgage may seem like an easy answer to money problems. But it’s risky. You are basically using your house like a piggy bank. And it’s very easy to lose your home as a recent story in theNew York Times points out. A reverse mortgage lets you borrow the money that you have built up in equity over the years. But many consumer advocates think this is a dangerous way to use your real estate nest egg. Having said that, as long as you know the details and feel comfortable with the terms, it might work out for you.
If you are at least 62 years old and you’ve paid off your mortgage, or have a small mortgage remaining, it’s likely that you’ll qualify. “The reverse mortgage is the bank lending you your money,” explains Mike Copley, Executive Vice President of TD Bank. The FHA part of the federal Housing and Housing and Urban Development Administration or HUD has a reverse mortgage program and government officials think it’s useful. Manny Alvarado a HUD housing specialist says, “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.” The money is paid out over time in regular installments.
FHA-INSURED REVERSE MORTGAGES
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 many worry their heirs will lose out if they use a reverse mortgage to borrow against their property. 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 warns TD Bank’s Copley, “ There might not be enough equity to pass the home on. If there is not, the lender takes the home.”
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.” Many lenders no longer offer reverse mortgages. “We don’t offer reverse mortgages because we don’t think they are good for the consumer,” explains TD Bank’s Copley. So if you are thinking of using your home to get cash, it’s important to study the details. Leonard Gordon, Northeast Director of the Federal Trade Commission, cautions, “It is just important with any financial transaction to take your time and avoid high-pressure sales tactics and to understand what you are getting into.”