If you are a fan of late-night TV, you have probably seen the commercial with Robert Wagner, famous for his television roles in “Hart to Hart” and more recently in “NCIS,” speak soothingly about reverse mortgages.
It’s very simple, he says. Live off the equity in your home. Get a loan that you don’t even have to make payments on!
Call this 1-800 number and a friendly loan counselor will get you set up and even send you a free DVD that will help answer all your questions!
It’s a tempting proposition.
It’s not quite that simple, of course. But it can be a good deal for some people over 62 who intend to stay in their homes.
Reverse mortgages, officially known as Home Equity Conversion Mortgages (HECM), are a method for extracting the equity you have put into your home over the years. For instance, if you bought your home in Canton in 1986 and paid $30,000, which was the going rate at the time, you could have lots of equity in your home, because the going rate these days is north of $200,000 for a home in good condition. Reverse mortgages allow you to extract a portion of that equity.
The basics: in a conventional “forward” mortgage, the borrower pays the loan company and the homeowner gains equity. In a reverse mortgage, the loan company pays the homeowner, which subtracts from the equity.
When the borrower moves out of the home, or dies, the loan is paid off. The heirs can pay off the loan if they want to keep the house, or the house can be sold, the loan paid off, and the rest paid into the estate.
Reverse mortgages are available to people 62 and older who want to stay in their homes. The older you are, the more money you can get, because the loan companies take life expectancy into account when calculating the loan.
“If you are not in good health, or you don’t think you are going to stay in your home, this loan is not for you,” said Margaret Elseroad, a housing counselor at the nonprofit Southeast Community Development Corp. on Eastern Avenue. Elseroad specializes in reverse mortgages. She took a detailed course and a test—”the hardest test I have ever taken,” she said—to qualify.
Borrowers can take the funds in a lump, take out a line of credit financed by the reverse mortgage, or take a “tenure” payment that will pay a fixed amount for as long as they live in the home.
It is wise to get counseling before agreeing to a conventional “forward” mortgage, but it’s mandatory for reverse mortgages. Elseroad says the counseling covers income, budget the estimated value of the property and whether a reverse mortgage is appropriate in the circumstances.
“Most of the people I talk to are brought in by the Robert Wagner commercial,” she said.
Counseling can take time, because the issues can get complicated, and must be complete before the loan application can be processed.
HECMs are insured by the federal government through FHA, so the house in question will have to pass an FHA inspection, which is stringent.
There are upfront costs, and they can be steep, just as with a conventional mortgage. Loan origination fee, appraisal, mortgage insurance, and other costs can run $6,000 for a $100,000 house, according to the National Council on Aging.
“You have to consider whether it will be worth it,” said Elseroad.
It might be. To find out whether a reverse mortgage is appropriate for you, find counseling. Southeast CDC offers it. Call 410-342-3234 for a free appointment or check www.southeastcdc.org, click the red “HOUSING COUNSELING” link at the upper right, and then click “Reverse Mortgage” on the left hand side.
St. Ambrose Housing Aid Center also offers reverse mortgage counseling. Phone 410-366-2550 for info.
For a loan calculator and other resources visit www.reversemortgage.org.
by Jacqueline Watts