Getting Paid Not to Make Mortgage Payments
Is a Reverse Mortgage Right for You?

Bill and Nancy thought they were prepared for retirement. Both worked, and Bill’s job provided a pension that would enable him to retire at 65. They maintained a diversified investment portfolio and, by 2007, had almost paid off the mortgage on their four-bedroom home.

Then came 2008’s credit crisis and ensuing recession. Nancy was laid off, Bill’s company is struggling, and the value of their home has fallen 40%. They once looked forward to retirement but now worry about meeting everyday expenses.

Sherri Stola, reverse mortgage specialist with Lake Worth-based First American Mortgage Company, says many older homeowners are finding help through a government-backed loan that’s actually been around since the 1980s: the reverse mortgage. A Jupiter resident since 1991, she obtained one herself last year.

A reverse mortgage is a low-interest loan for senior homeowners that converts a portion of a home’s equity into tax-free cash. “The borrower receives payments from the lender, instead of making them, as in a conventional mortgage,” says Sherri. The funds can be paid as a lump sum, monthly increments, or a line of credit—or as a combination of the three methods.

In the past, says Sherri, borrowers often used reverse-mortgage funds for travel and other discretionary expenses. Today’s borrowers may have lost their jobs, seen their investment income drop, or have family members facing financial hardship. “They need the money for basic living expenses, just to get through these tough economic times,” she adds.

As with any major financial decision, Sherri advises borrowers to learn the facts before deciding if a reverse mortgage is right for them. She notes that applicants must speak with an approved independent counselor before loan approval.

• Who’s eligible? Homeowners aged 62 and up who have paid off at least half of their mortgage balance. There are no credit or income requirements.
• How much can I borrow? That’s determined by your age, prevailing interest rates, and the appraised value of your home. The maximum amount that can be borrowed is currently $625,000; that’s scheduled to go down to $417,000 in 2010.
• What’s the cost? An origination fee is folded into the loan, as are interest, mortgage insurance, and service fees. The homeowner also must continue to pay for property taxes, insurance, and home maintenance.
• Does a reverse mortgage affect my benefits? Reverse-mortgage funds are not classified as income and thus do not affect Social Security or Medicare benefits. Other state and federal benefits, such as Medicaid, could be affected, however.
• When do I have to pay it back? Not until the last homeowner dies or until you no longer use the home as your primary residence. If the home is sold, the loan must be repaid, but the homeowners (or their heirs) can keep any extra proceeds.
• What if my home can’t be sold for enough to repay the loan? The loan repayment amount cannot exceed the market value of the home. Neither you nor your heirs are required to pay any shortfall, as long as the terms of the loan agreement have been met.