Web posted
Wednesday, January 2, 2008
More seniors looking to reverse mortgages to make ends meet
By THE ASSOCIATED PRESS
WICHITA, Kan. (AP) -- Rising living expenses and stagnant incomes have led to a surge of borrowing by senior citizens through reverse mortgages, often-expensive loans that don't come due until the borrower moves out of the house or dies.
While reverse mortgages are helping some seniors stay in their homes longer and make ends meet, experts caution that the loans aren't for everyone.
''You have to plan on staying in the house to make it work, and you have to have a substantial amount of equity,'' said Randy Vickers, president of Priority Mortgage in Wichita. ''If someone is doing well financially, it's not for them. The majority of what we're writing is people who are on a fixed income.''
Reverse mortgages allow homeowners to draw on the equity of their house. Lenders pay the homeowners, instead of the other way around.
About 90 percent of reverse mortgages are insured by the federal government, and a person has to be at least 62 years old to qualify.
In fiscal year 1990, 157 reverse mortgage loans were insured by the U.S. Department of Housing and Urban Development. By fiscal year 2007, which ended Sept. 30, that number had grown to 107,558, according to the National Reverse Mortgage Lenders Association.
''The biggest reason people get them is incomes are not keeping pace with expenses,'' said Justin Robinson, a certified counselor at Consumer Credit Counseling Service in Wichita. ''I've seen several people this week alone who have prescription costs that are $200 a month. Social Security benefits aren't much for a lot of people.''
Reverse mortgages can be expensive, though the costs are rolled into the loan. Robinson said fees on a $150,000 loan can be as high as $8,000 to $9,000.
''You have falling equity, rising debt instead of rising equity, falling debt,'' he said. ''When you start with this, you'll owe $5,000 to $10,000 more on your house the very day you sign up for it.''
Doris Heil, 76, who lives off Social Security and a small pension, closed on her reverse mortgage about a month ago. She is using the proceeds to pay off a personal loan from a friend and do some remodeling of her townhouse.
After she moves away or dies, her heirs will have the option of selling her house to help pay off the reverse mortgage or living in it and paying off what she owes.
She said she would not have been able to repay her friend, who recently moved into a nursing home, without the reverse mortgage.
''I feel a lot better to be able to pay off the bill,'' Heil said.
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