Three years ago, when my mother got a reverse mortgage, no one we knew had ever heard of such a product. Today, if you were to look up reverse mortgage on the Internet, your inquiry would muster a list of 150,000 for Washington alone. Thats a lot of shops to choose from. It is also an indication that reverse mortgages are a trend. Yet, given the advanced age of prospective customers, reverse mortgages are likely to be at least somewhat misunderstood by many seniors which could spell calamity for their families.
A reverse mortgage enables senior homeowners 62 or older to borrow money against the equity of their homes. Qualifying for this type of mortgage does not depend on a borrowers credit or medical history, and they need not be employed or have any income. The amount of tax-free money available through a reverse mortgage normally depends on the type of reverse mortgage selected (three types are available), the age of the homeowner, the value of the home and its location. Also, just like conventional home mortgages and equity loans, reverse mortgages have substantial up-front costs that could make them quite expensive if used as a short-term solution.
While the reverse mortgage is a unique financial tool for seniors, the prudence of using it as well as the timing and method of funding are issues that concern families as well. In my mothers case, at 83 and a widow, she was a bit too fuzzed from trauma and medication to trust her own judgement, even though the solution appeared to be clear. Our family reviewed the situation and decided what was really needed was a strategy, a game plan that would enable Mom to use her property to meet high short-term costs while also giving her flexible long-term options depending on how well she recovered.
Many senior homeowners feel vulnerable and afraid that a reverse mortgage will put them on the street when their money runs out, explained Jon Hanes, president of Northern Mortgage, Inc., in Lakewood. The fact that they dont need to make payments, can stay in their homes for the rest of their lives and continue to benefit from the appreciation of their property often seems too good to be true.
He added, At the same time, the reverse mortgage may not be the only practical solution to a seniors needs. There may be short-term or interim solutions such as interest-only loans that enable younger seniors to bridge their finances until a reverse mortgage can benefit them the most. In some cases, a long-term strategy requires a program with a combination of products that can meet changing needs.
To provide an overview of reverse mortgages and other financial solutions for senior homeowners, Northern Mortgage is offering free, no-strings Reverse Mortgage mini seminars beginning Thursday, August 19. A one-hour presentation followed by open discussions, the seminar provides a user-friendly explanation the types of reverse mortgages available as well as the various costs, terms and choices in how they may be funded. Other forms of home-equity-based senior solutions are also covered, and family members and friends are encouraged to attend.
Before deciding on a reverse mortgages, senior homeowners normally have to discuss the transaction and optional solutions with a HUD (U.S. Housing and Urban Development) counselor, Hanes said. This is an excellent idea and has been instrumental in the design of our seminar. In it we try to anticipate the questions a senior or family member might have about their situations. If people choose, we also address their specific situations and even what if scenarios.
Hanes said that because the funds derived from a reverse may be used for any purpose, professional guidance and family participation is usually very helpful.
Although many of our customers feel an urgent need for cash, they can also use the funds from a reverse mortgage to benefit their children or grandchildren, he noted. Some seniors may choose to use the funds as a sort of living legacy, where they can enjoy the fruits of their real estate investments by providing tax-free gifts to help a son or daughter buy a first home, or see a grandchild go to college.
Other common uses of reverse mortgage funds may include bolstering retirement income, paying off expensive credit card balances, getting rid of other loans, or paying for medical bills or long-term care insurance.
One of the most compelling reasons to opt for a reverse mortgage is that it enables seniors to stay in their homes, where many are likely to feel as happy, comfortable and independent as possible. Funds may be used to make the home safer and more accessible for the elderly by remodeling or adding special safety fixtures or access features to bathrooms, kitchens and entries. An elderly couple recently acquired a reverse mortgage through Northern Mortgage for the purpose of upkeep of their house and extensive landscape.
The flexibility of the reverse mortgage was one of the most appealing attributes to my own family. We could choose to keep my mom in her co-op as long as she liked, and could take the funds as a line of credit, monthly income or a lump sum. Because her primary financial need was to cover unpredictable medical expenses, we chose the credit line. Happily, she recovered her health and her property appreciated in value substantially over the following three years. Mom recently decided to sell the property for a handsome profit, repay the reverse mortgage funds used, and move into a rental unit in a senior community that offers the security and amenities she now wants.
Its important to bear in mind that a reverse mortgage is not always the only solution for senior homeowners, Hanes said. I have met some who were better off with other short-term loans, or who could curb expenses in a number of ways, including special property tax reductions.
Hanes emphasizes the need for solutions that address individual seniors requirements and the necessity of family support.
With seniors, we are dealing with people who have much pride and sensitivity. Unfamiliar financial tools such as reverse mortgages or alternative financing may tend to confuse them or make them procrastinate to the point where they have pressing difficulties. It is not unusual for seniors to hide such difficulties from their families, and eventually suffer a lot of distress. Our free seminar program is designed to help seniors avoid such dilemmas by familiarizing them with their home equity options and welcoming their families into the process of choosing the right one for them.
Hanes added that in addition to seminars for larger groups, Northern Mortgage offers in-home reverse mortgage workshops for friends and families.
Those interested in attending a free Reverse Mortgage Seminar can make reservations by contacting Lisa Simmons at Northern Mortgage at 800/511-2526. Afternoon and evening seminars are available.
For more information, contact Jonathan Hanes, Northern Mortgage, Inc., 11020 S. Tacoma Way, Lakewood, WA 98499; Phone: 253/512-1169; e-mail: firstname.lastname@example.org; or visit www.northern-mortgage.net.
Ed Sullivan (email@example.com) is a contributing author of feature articles on retirement, real estate, nutrition and healthcare services. He is based in Hermosa Beach, Calif. And yes, he realizes he has a famous name.