AOL Daily Finance: Reverse Mortgages a “Lifeline” for Low-Income Seniors

Reverse mortgages can be a lifeline for low-income seniors, reports a recent AOL Daily Finance article.

The product can be “very valuable” in situations where an eligible senior has home equity but not a lot of monthly cash flow, the article quoted Margot Saunders, a counsel with the National Consumer Law Center, as saying.

“If you are sitting on a mortgage and you can afford to make payments on it, and have home equity and other assets, this is probably not a good idea,” said Saunders. “But if you are 85 years old and have $250 a month in income and a $500,000 house, it’s a great idea no matter how much it costs, because the lender will give you money you don’t otherwise have.”

However, Daily Finance goes on to advise interested borrowers against getting a reverse loan for the purposes of frivolous purchases, saying the loan proceeds should be used for necessary expenses.

The article also details the “pitfalls” of reverse mortgages, including high upfront origination fees and interest rates, although it mentioned the Home Equity Conversion Mortgage (HECM) Saver program. The HECM Saver has lower upfront fees, but typically higher interest rates and restricted borrowing.

Now that reverse mortgages have been securitized, the market is heavily in favor of the fixed-rate product; this necessitates receiving funds in a lump sum, but this isn’t a good idea, Daily Finance cautions. Instead, borrowers should opt for a variable rate mortgage that allows a line of credit that can be drawn from as needed.

“Homeowners who take the cash all at once may not have the ability to pay property taxes and insurance later, and HUD is directing lenders to foreclose,” said Saunders in the article. “The rules should be changed so there is an evaluation of the ongoing ability to pay taxes and insurance, or money should be kept in reserve.”

Read the full article here.

Written by Alyssa Gerace

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