COLUMN:

Reverse Mortgage:
Is It Right for You?

"With a reverse mortgage, you could use the equity in your home to do the things you’ve always wanted to do. "

Reverse mortgages rank among the fastest growing financial products available today. Simply put, they are specialized loans that are similar to equity lines of credit that you get from a bank. They allow homeowners aged 62 and older to convert a portion of their home equity into cash. The homeowners can withdraw their equity via a lump-sum payout, monthly payments or a combination of the two. Or they can leave the money in a line of credit that grows over time and is there for them to use whenever they want, whether it be five, 10 or 20 years down the road.

Unlike a regular mortgage or equity line of credit, reverse mortgage borrowers are not required to make a monthly mortgage payment for the life of the loan, although they may choose to do so without any prepayment penalty. They can live in their residence the rest of their lives and the loan will not be due until the last surviving borrower dies or moves out of the home permanently. Only at this time are the heirs to the property required to pay back the accumulated principal and interest by refinancing or selling the home.

Reverse mortgages also are different from traditional mortgages in that the closing costs may be higher due to the higher lending limits and the higher risks that the lender takes over the long term. Increased expenses also are due to required government mortgage insurance that protects the borrower from foreclosure as long as he maintains the property and pays property taxes and homeowner’s insurance. The government mortgage insurance also protects the borrower’s heirs from owing more than the home is worth.

Revocable living trusts including the property are allowed, fee simple and leasehold properties converting to fee simple are eligible, and you may refinance an existing reverse mortgage or sell the home at any time.

Since many seniors own their own home, they are literally sitting on hun-dreds of thousands of dollars in equity. Typically, Hawaii residents are property rich and cash poor, so a reverse mortgage may be a good option in that it enables them to enjoy life to the fullest while staying in the familiar, comfortable home where they may have raised their children.

The decisions homeowners make about their property, in which much of their wealth is tied up, can significantly impact their quality of life as they age. People have expressed an interest in reverse mortgages to help pay for house repairs. Some have used the money for travel, to buy new appliances and furniture, and to pay for classes they’ve always wanted to take.

Recently, the National Council on Aging (www.ncoa.org) conducted a study to show how reverse mortgages can help elderly homeowners, many of whom have chronic conditions, pay for long-term care at home. You can use reverse mortgage payouts however you choose, and the proceeds do not affect your status for Medicare or Social Security benefits.

All reverse mortgage applicants are required to go through a government-sponsored counseling process. The Legal Aid Society of Hawaii provides free counseling on all islands or you can contact your reverse mortgage specialist for a list of counselors. This mandate protects senior homeowners from being rushed into signing mortgage documents or being misled by a financial adviser.

You should ask yourself two questions when considering a reverse mortgage: 1) do you want to stay in your home for the foreseeable future? and 2) if you could have access to additional funds would you be able to improve your quality of life or at least obtain some peace of mind?

If your answer to both questions is yes, set up a meeting with a reverse mortgage specialist to discuss options that can help you best meet the goals and priorities you’ve set for yourself and your family.

Percy Ihara is the Reverse Mortgage Specialist and Certified Senior Adviser for Financial Freedom, the nation’s largest direct lender and provider of reverse mortgages. He conducts free monthly reverse mortgage seminars; for details, call 368-6747 or toll free (866) 369-6747 from the neighbor islands. Space in the seminars is limited and advance reservations are required. You also can peruse the Web sites www.financialfreedom.com or www.aarp.org/money for more information.

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