Archbishop's web site Denver Catholic Register Parishes Catholic Pastoral Center
October 16, 2002
Reverse mortgages can be boon for seniors, but require caution
By Nancy Frazier O'Brien
(CNS) — Reverse mortgages have been marketed as a ticket to financial freedom for today's seniors. But like any financial transaction, they must be approached with caution and with a full understanding of the terms.
Widely available only since 1989, reverse mortgages are special types of loans that allow homeowners 62 and older to convert the equity in their homes into cash. The homeowner can choose to receive the funds in a lump sum, in payments over a number of years or as a line of credit that the homeowners may access as needed.
The amount of the reverse mortgage will depend on the age of the homeowners and the appraised value of the home. There are no credit or income requirements to obtain a reverse mortgage.
Unlike other loans, no monthly payments are due and reverse mortgages do not need to be paid back until the last surviving borrower dies, sells the home or no longer uses it as his or her principal residence. Although a homeowner can never be forced out of his or her home because of a reverse mortgage, someone who has been in a nursing home for a year, for example, might be legally obligated to pay off the mortgage at that time.
To qualify, any mortgage on the home must be nearly or completely paid off. Single-family homes, townhouses and certain condominiums and mobile homes are eligible, as long as they are the homeowners' principal residence.
With a reverse mortgage, the homeowners retain title to their home and continue to be responsible for paying the property taxes and insurance and for general upkeep of the property.
Taking out a reverse mortgage will have no effect on Social Security or Medicare benefits. However, it could have an effect on the benefits you receive, if any, from the federal Supplemental Security Income program or state-administered programs like Medicaid.
When a reverse mortgage comes due, the loan amount plus all accrued interest and fees will be deducted from money received in the sale of the home, with any remaining funds going to the homeowner or his or her estate.
The U.S. Department of Housing and Urban Development recommends — and for HUD-approved loans, requires — that seniors gets free advice from a HUD-approved housing counseling agency before signing any documents on a reverse mortgage. Referral to such an agency is available by calling 888-466-3487, toll-free.
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