Financial experts discuss pros, cons of reverse home mortgages

With a volatile stock market draining retirement savings from the bank accounts of seniors throughout the U.S., Larry Reiminger believes hope for some Southeast Missouri retirees lies in the reverse home mortgage.

As a reverse mortgage consultant with Wells Fargo Home Mortgage, 1131 N. Kingshighway in Cape Girardeau, Reiminger travels to area senior centers, quilting shows, financial planning seminars and other events to spread his message.

"For an increasing number of senior citizens, the stock market has tanked, leaving them with a great loss of retirement income," Reiminger said. "In many instances, the only thing they have left is their nearly or fully paid mortgage. But the beauty about the reverse mortgage is it allows them to draw extra income while keeping their home."

Available to those 62 years old and older, a reverse mortgage allows the homeowner to borrow against equity he or she has established in the home. Instead of a homeowner making payments to the lender for a set number of years -- as is the case with a conventional mortgage -- he or she can receive them in one sum or multiple payments.

In applying for a mortgage, two other factors in addition to age are considered: the home's equity and the amount owed on it. Borrowers must also complete a counseling session before they can apply for a reverse mortgage.

Interest begins accruing on the loan as it would on a forward mortgage. The loan is paid off after the borrower dies or after he or she leaves the home for more than 12 months.

At the loan's end, it can be paid off with proceeds of the sale of the home. If the borrower's children or other heirs want to inherit the home, they have an option of refinancing the house as if they were purchasing the structure.

Costs include service fees, closing costs, appraisal fees, insurance and an origination fee.

Reiminger said a common misconception among borrowers is that they can lose their homes if they outlive the loan term.

"This is very far from the truth," he said. "As long as the borrower pays taxes and insurance, the person will not have to leave his or her home."

While local institutions such as Capaha Bank and First Missouri State Bank do not have loan officers who deal with reverse mortgages, Montgomery Bank is in the process of completing training to offer them to seniors. Mortgage loan officer Monica Walden said several employees are undergoing seminars with authorized leaders so they can offer the service to Southeast Missourians.

"It sounded like a good product that we could offer to our customers," Walden said. "The demand hasn't been high yet but we'll have our employees ready."

According to the U.S. Department of Housing and Urban Development, government-backed Home Equity Conversion Mortgages have steadily increased from 157 issued in 1997 to 107,367 loans approved in 2008. Among homeowners' top reasons for seeking reverse mortgages are emergencies, better quality of life, everyday expenses, home improvements, paying off the mortgage and health.

"I'm seeing many baby boomers nearing retirement age but they're not planning enough to retire," Reiminger said. "The beauty about a reverse mortgage is that it gives another option for retirement income. But a word of caution -- with the way the housing market is today when the value of homes are declining, it's better to get a reverse home mortgage now before the value keeps decreasing."

Reiminger said new rules passed by Congress will boost safeguards for borrowers. H.R. 3221, which went into effect Saturday, raises the loan limit to $417,000, up from the old limit of $200,160 to $362,790, based on qualifications.

While financial experts such as Reiminger see the value of reverse mortgages, others such as nationally syndicated radio talk show host and financial planner Dave Ramsey think differently.

"Many elderly people in need of money look at getting a reverse mortgage," Ramsey said in a written statement. "Reverse mortgages are very dangerous, especially for elderly homeowners. Reverse mortgages are very expensive and promise an uncertain amount of benefits."

Ramsey cautioned seniors to be wary of these loans, which he thinks have complex contracts and may include "additional interest" clauses. He said these clauses can allow the lender to keep all future property gains should the property appreciate before the loan is paid in full.

He also advised children of seniors to be cautious. "If you have a family member considering a reverse mortgage, convince them otherwise," said Ramsey, whose Financial Peace University classes have been taught are various Southeast Missouri churches.

Reiminger said in some cases when senior citizens are concerned a reverse mortgage would take away the children's inheritance of the home, he said the children many times are being selfish.

"The borrower could take money generated from the reverse mortgage and go ahead and give their kids that money while they're still alive," he said. "That's the beauty of the home mortgage. It gives the homeowner a chance to enjoy the money before they're gone."

bblackwell@semissourian.com

388-3628

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