The pros and cons of reverse mortgages for senior homeowners.

DATELINE: BRAINTREE, MA…
General knowledge about the concept of reverse mortgages is often fragmentary, inaccurate, and negative. What exactly is a reverse mortgage and what are the pros and cons for senior homeowners?

When this question was posed to Reverse Mortgage expert George Downey, founder of Harbor Mortgage Solutions in Braintree, MA, the response was comprehensive but succinct, offering an overview of the plusses and minuses of reverse mortgages.

An overview of the pros and cons of reverse mortgages
A reverse mortgage, essentially the opposite of a traditional or “forward” mortgage, can enable seniors (62 or older) to tap into accumulated home equity without having to face ongoing payments. Unlike traditional mortgages where borrowers make monthly payments, in a reverse mortgage the cash flow is reversed, and the lender makes payments to the borrower, enabling borrowers to use the tax free cash they receive in any way that they wish.

There are no minimum income, asset, or credit qualifications to meet and no effect on Social Security or Medicare benefits. The property must be the primary residence of the borrower and properly insured and maintained, with real estate taxes kept current. As long as the borrower continues to live in the property the loan can never be called. Repayment is required if the home is sold, or when the last borrower permanently leaves the property, or passes away. At that time, the heirs can sell, or refinance, the property to pay off the loan.

The major downside of a reverse mortgage is the potential expense associated with the loan. Reverse mortgages generally are most costly when you live in your home only a few years after closing the loan. These loans are tied to a floating interest rate, so as interest rates increase, the cost of the reverse mortgage becomes more expensive. Compared to traditional mortgages, the closing costs of reverse mortgages are higher since they are non-recourse loans, which means that the amount due can never exceed what the home is worth. Insuring this risk away protects borrowers and their heirs but adds to the total cost of the loan.

There are also some caveats that exist in a reverse mortgage that might cause a problem for some homeowners, such as maintaining the home to a certain standard. Borrowers also cannot move out of the property without the loan coming due. It cannot be turned into a rental property to gain income, instead it must be sold or refinanced so that the loan is paid off within a certain time period after the owners move out. It can also be risky to take out a reverse mortgage to provide cash for an investment. Borrowers must be aware of the pitfalls of assuming that an investment will make money when, in reality, it may fail!

Downey emphasizes, “Each situation is unique. A reverse mortgage may provide the best solution for some for some senior homeowners and be totally inappropriate for others. Involving family members in the decision making process is critical, as is the availability of sound professional advice. Experts on Elder Care Management and Elder Law attorneys are also often drawn into the process to determine if a reverse mortgage is the best solution for all concerned, or whether other alternatives might provide a better solution.”

Harbor Mortgage Speakers Bureau
Area Councils on Aging, Visiting Nurse Associations, home healthcare providers, civic organizations, and church groups are invited to contact Harbor Mortgage to schedule an educational presentation to learn about alternatives available to senior homeowners, including ways to unlock the equity in their homes.

“Use Your Home to Stay at Home”
A recent study conducted by the National Council on Aging (NCOA) set out to develop a blueprint to serve as a guide for policymakers as they explore the opportunities and limitations of tapping home equity to pay for long-term care at home. The study found that impaired, older Americans are struggling to live at home at a time when they own more than $2 trillion in untapped housing wealth.

Education is an ongoing goal, as outlined in the NCAOA report entitled “Use Your Home to Stay at Home - Expanding the Use of Reverse Mortgages for Long-Term Care: A Blueprint for Action.” It is in keeping with the spirit of this report that Harbor Mortgage Solutions established its free Speakers Bureau.

Once the province of a few small banks and private lenders, the great majority of reverse mortgages today are provided through government-sponsored programs, namely the HUD/FHA Home Equity Conversion Mortgage (HECM) and the Fannie Mae Home Keeper (HK) programs.

Customized Harbor Mortgage Solutions
Specializing in conventional residential and reverse mortgages, Harbor Mortgage Solutions, Inc. is located at 100 Grandview Road, Suite 105 in Braintree, MA. George A. Downey, who is now joined by his son Christopher Downey, founded family owned and operated Harbor Mortgage Solutions in 1978.

Assisted by a staff of experienced mortgage professionals, Harbor Mortgage Solutions is dedicated to providing customized service, obtaining the best possible solution for each individual client every time. An equal opportunity lender licensed in Massachusetts and Rhode Island, Harbor Mortgage Solutions is a member of the Massachusetts Mortgage Association, the National Association of Mortgage Brokers, and the National Reverse Lender Mortgage Association, strictly subscribing to their rigid code of ethics. Harbor Mortgage Solutions is also an Educational Subscriber of the Massachusetts Chapter of the National Association of Elder Law Attorneys.

For additional information on services offered by Harbor Mortgage please call 781-843-5553 or 800-599-8700, or visit www.HarborMortgage.com.