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Reverse Mortgages Useful in Tight Market
By
Michael A. Piekarz
Spectrum Staff Writer
Reverse
mortgages may be a safe and valuable tool for seniors needing income
as home prices decline during this current meltdown of the overall
economy.
According to the U.S. Department of Housing and Urban Development (HUD), there
are approximately 27 million senior homeowners nationwide.
Many of these senior homeowners rely on the family home as their ultimate source
of financial security and stability. “For most people, their home is their
best financial asset,” said David Peskin, CEO of Senior Lending Network.
The bursting of the mortgage bubble has caused the value of real estate – including
the family home – to plummet just when many seniors need the money represented
by their home equity.
“Under the pressure of the current economy, all homeowners have seen their
properties appraise at lower values, and no one wants to sell their home at this
point in the cycle when, over time, home prices have historically increased in
value,” explained Peskin.
The conflict between fiscal necessity and an inability to “cash out” by
selling their home has led many seniors to the practical use of reverse mortgages
as a financial tool.
According to HUD, a reverse mortgage allows qualified homeowners to borrow against
the equity in their homes. Under the HUD program, homeowners must be over the
age of 62, and they must have established significant equity in their property.
The size of a reverse mortgage loan is determined by the borrower’s age,
the interest rate and the home’s value. A basic rule-of-thumb suggests
that the older the borrower, the larger the percentage of a home’s value
that can be liquidated.
A HUD reverse mortgage does not require repayment as long as the borrower lives
in the home. Lenders recover their principal, plus interest, when the home is
sold. The remaining value of the home goes to the homeowner or to his or her
survivors.
The money obtained through a HUD or any other reverse mortgage program can be
received as payment in a lump sum, on a monthly basis for a fixed term, or on
an occasional basis as a line of credit. Homeowners whose circumstances change
can restructure their payment options.
“In the current economic climate, reverse mortgages, most of which are
non-recourse loans that are backed by the government, offer a ray of hope for
seniors,” explained Tom Kelly, noted author and financial expert.
Kelly recommends reverse mortgages for their financial viability and the fact
that they allow seniors to remain in the family home.
“Not only might they be the best financial solution for the senior, but
emotionally they also offer the opportunity to stay in the home and live a comfortable
life without adding the uncertainties of moving,” said Kelly. “This
is a rare opportunity these days.”
For many seniors, the equity in their home is what allows them to make ends meet
during these rough economic times. Many have turned to reverse mortgages because
it may be their only financially viable option.
“Our home means so much to us, and we did not want to sell it during a
time when prices were so low, but we felt trapped since the bills were piling
up,” said senior homeowner Reigh Collick.
“We decided to get a reverse mortgage so we could stay in our home and
have the cash we needed to live comfortably. So far it has exceeded our expectations.”
Lenders expect to see more seniors relying on reverse mortgages as they weather
the economic downturn. “Reverse mortgages allow the homeowner the flexibility
to wait out this storm,” said Peskin.
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Metropolitan News Company, Inc.
