Seniors selecting reverse mortgages
Baby boomers aren't the only
ones jumping on record low mortgage rates and high home values to finance
Older homeowners dreaming of ways to stay in a home and draw on its value for
living expenses, health care or home improvements are also getting in on the
action, according to a national group of lenders that make what are known as
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. The loans are available only to those 62 and
The combination of great rates and surging house values is expected to nearly
double applications for such loans this year, according to the National Reverse
Mortgage Lenders Association.
The group cites federal housing statistics for the most popular reverse-mortgage
product, the Home Equity Conversion Mortgage insured by the Federal Housing
Administration. In fiscal 2001, about 7,800 homeowners took out Home Equity
Conversion Mortgages. About 12,800 loans will be made this year if the pace
According to the Department of Housing and Urban Development, 10,492 loans had
been made as of July 31, more than the full-year record of 7,982 set in fiscal
In a reverse mortgage, a borrower can take the loan all at once, monthly or as
needed, and in amounts that the borrower selects. The borrower or his estate
must pay the money back plus interest and any other charges when he sells,
permanently moves out or dies.
Because a borrower makes no monthly payments, the amount owed grows larger over
time. That means the money left after selling a house and paying off the loan
generally grows smaller.
The borrower must also continue to pay for property taxes, insurance and
repairs. If not, the reverse loan becomes due and payable in full.
But a borrower can never owe more than a home's value at the time the loan is
repaid. That's why older homeowners should consider reverse mortgages, said
Peter Bell, president of the reverse-mortgage lenders group.
"The current conditions, of robust home values and low interest rates, enable
borrowers to get a larger reverse mortgage than ever, which can translate into a
bigger monthly check or larger line of credit," Bell said. "But should
conditions change for the worse, seniors who have taken out a reverse mortgage
will be protected and not see any reduction in their benefits from the reverse
Bronwyn Belling, AARP's reverse-mortgage expert, agrees that "all the planets
are aligning" to increase reverse-mortgage borrowing.
Not only are low interest rates and high house values driving the momentum, she
said, but "retirement and pension funds are not performing," cutting financial
resources for retirees.
Belling cautions that potential borrowers must still do the fairly complicated
math to determine if a reverse mortgage is better than a home-equity loan,
buying a less-expensive house, renting an apartment or moving to an
A reverse mortgage would be expensive for those who sell a house quickly, in
part because of high closing costs attached to the loan.