Open House
Posted March 15, 2006

Dear Joan:

 My parents are both 72 and live in Oregon. They are in good health and I love to bring them  to Maui in the winter to visit. They live primarily on their Social Security and I believe  that a few extra bucks in their pocket each month would make a difference in them being able to enjoy their golden years.

 The modest home they bought and I grew up in is now paid for and worth $700,000. Do you think a reverse mortgage would be a good for them?

 Signed,

Helping Mom and Dad

Dear Helping,

 It sounds like a reverse mortgage could be an option for your parents,. since they have substantial equity in their property, are both over the age of 62 and still live in their home.

 Reverse mortgages are gaining in popularity because people are living longer and property values have risen substantially. The Department of Housing and Urban Development says a record 43,131 government-insured reverse mortgages were issued in the fiscal year ending September 30, 2005, a 14 percent increase over the previous year

 What exactly is a reverse mortgage? A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash.

 Although there are no credit or income requirements, the borrower cannot be in bankruptcy. The amount available to the borrower will vary based on the borrower’s age, value and location of the home, interest rates and outstanding mortgages.

 Eligible types of principal residences include owner-occupied single family detached houses, condominiums, manufactured homes on separate owned lots, town homes, and some cooperative apartments.

 One of the features of a reverse mortgage is that you have five options to select from for receiving payments:

• Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
• Term - equal monthly payments for a fixed period of months selected.
• Line of Credit - unscheduled payments or installments, at times and in amounts of borrower's choosing until the line of credit is exhausted.
• Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.
• Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

With a reverse mortgage, you remain the owner of your home. Contrary to popular myth, the reverse mortgage lender does not take title to the principal residence. You are still responsible for paying your property taxes and home-owner insurance and for making property repairs.

The reverse mortgage is paid off when the homeowner sells the house, passes on or no longer uses it as a primary residence. These mortgages are designed so that the loan balance cannot be greater than the value of the home.

So why wouldn’t your parents want to take out a reverse mortgage? There are fees associated with them that can be expensive, especially in the first five years. Your parents would also be spending your inheritance, which you may be fine with, but it is something that they may want to consider.

 You can receive free information about reverse mortgages by calling AARP at: 1-800-209-8085, toll-free. You can also contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain the name and telephone number of HUD-approved counseling agency and a list of FHA approved lenders within your area. To receive information on calculating the total annual loan cost calculation you can go to the website www.reverse.org

I spoke to a number of lenders on Maui and learned that you can get a reverse mortgage here. One of the interesting things I learned in these conversations is that before borrowers can sign the documents for a reverse mortgage, they must take a one hour class which covers the details of the reverse mortgage.

 And last but not least as this is an important decision for your parents to make I strongly urge them to check with their financial advisor, tax advisor and attorney for advice before making a final decision. I’d also recommend they talk it over with the kids. That said, this could be the year they finally take that cruise to Tahiti!

Reprinted from The Maui News