By Clyde Noel
Town Crier Correspondent
The golden years in a senior’s life are not always the happiest. With today’s rising costs and fixed incomes, many seniors are trying to figure out how to stretch the income they receive from Social Security and company pensions.
One solution to consider is a reverse mortgage (RM). If you are 62 or older, and are “house-rich, cash-poor,” a reverse mortgage is an option to help increase monthly income.
To qualify for an RM you must be a homeowner, and the mortgage on the home must be fully or nearly paid off.
When a senior qualifies for an RM, there are no monthly payments on the loan. Instead, the lender pays the borrower. Typically, the RM is repaid from the home equity when you sell the home, move out permanently or die.
Because a home is such a valuable asset, before an application is made for an RM the homeowner should consult with family members, an attorney and a financial advisor.
The loan is based on the age of the borrower, current interest rates and the amount of equity available in the home. The older the person, the more money available for the loan.
Loans are not easy to come by, even though they are FHA insured. Not all banks in Los Altos issue RMs.
“The Bank of Los Altos does not offer reverse mortgages,” said a bank officer who asked not to be named. “In too many cases, depending on the outcome, it is not good public relations. Seniors are living longer and you have to go through the process again.”
Another reason for not issuing RMs is the large fees. Like most loans, you pay an origination fee, appraisal fee, title fee, escrow fee, recording fee and monthly servicing fee. These fees can be included in the loan balance, but that eats into the equity of the home.
Does the AARP (American Association of Retired Persons) think reverse mortgages are a good idea? In their booklet they state that it is “for some people.”
According to the AARP, it depends on an individual family’s particular circumstances. RMs can be especially valuable for people who have little cash income but a fair amount of equity in their homes and who want to stay in their homes. The question revolves around independent living and economics.
There are several independent agencies that provide free information on reverse mortgages. These include the AARP at (202) 434-6042, the National Reverse Mortgage Lenders Association at www.reversemortgage.org, and Fannie Mae’s Office of Public Information at 1-800-7FANNIE.
