SAN FRANCISCO — When it comes to retirement, you need to consider your financial future. Senior homeowners are faced with many options and NBC11 consumer editor Sloan Barnett explains a way to keep the house and still have some cash.

“I got a reverse mortgage because I didn’t know what my financial future was and I wanted to be sure that I had enough money to take care of any needs that I might have,” said senior homeowner Jean Romer.

With a regular mortgage, you make monthly payments to the lender but with a reverse mortgage, you receive money from the lender.

“The idea of the loan is a tool for the seniors to tap into the equity that is locked into their homes, convert into cash so they can use it to spend on themselves to maintain their lifestyle or improve on their lifestyles,” said Miren Alvarez with Financial Freedom

The loan from a reverse mortgage is different from a home equity loan or a traditional second mortgage — both of which you have to apply and qualify for.

To qualify for the reverse, you just need to be 62 or over and a homeowner.

The reverse mortgage offers many benefits. “(There are) no monthly payments for as long as that home is your primary residence, which is usually the main intention for the seniors. They want to stay at home, they just can’t afford to,” said Alvarez.

“You keep title; the loan only becomes due when you sell the house, the senior sells the house or they move away or pass away,” said Alvarez

Taking money out of your house may seem like a great idea, but you need to read and understand the fine print.

“The fees associated with this loan are much higher then a conventional mortgage,” warned Joe Ridout with Consumer Action.

Lenders charge origination fees and closing costs in addition to the interest on the outstanding balance.

“If you expect to move out of the home in less than five years or think you might die in less than five years, it’s probably not a good idea,” said Ridout.

Another key to remember about the reverse mortgage is that the more equity you take out of your home, the less that remains for your children.

“Some senior citizens have a saying that they are going on ’ski’ holidays. ‘Ski’ meaning spending kids’ inheritance. And for people who have worked hard for decades, they deserve to enjoy some of the fruits of their labor,” said Ridout.

Romer is outraged because the mortgage company will get a big chunk of her estate. When she signed her reverse mortgage in the late 90s, she agreed to a 5 percent equity share on the appreciated value of the house.

“I have to have an appraisal which I have to pay, plus I have closing costs which I have to pay for and I also have to pay 5 percent of what the appreciated market value of the house is,” said Romer.

The good news for consumers who have not yet reached 62 is that the government no longer allows that type of equity shares as part of reverse mortgages.

So, do your research before you meet with a lender. “Make sure that you understand everything that you are signing,” said Ridout.

It is important to remember that you retain the title to your home, so you remain responsible for property taxes, insurance, utilities, maintenance and other expenses. If you don’t maintain your homeowner’s insurance, you risk the loan becoming due and payable.

Source: NBC11.com 

This entry was posted on Friday, July 7th, 2006 at 3:01 pm and is filed under Reverse Mortgage News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.