Chicago Tribune: Reverse Mortgages Can be “Tricky”

A reverse mortgage can be like marriage, The Chicago Tribune reports in an article this week—”the experts say, these are arrangements not to be entered into unadvisedly or lightly.”

The article, titled “Reverse Mortgage a Tricky Way to Pull Money From Home,” includes insight from AARP legislative policy director David Certner. Reverse mortgages are something to consider for people who want to remain in their current homes and don’t have any other options, Certner tells the Tribune.

“If the one asset you have is your home, a reverse mortgage will let you turn it into a payment stream,” Certner tells the Tribune. “Maybe you simply need a home equity loan, or to sell the home and move to something smaller. For a lot of people who want to stay in their own homes, the reverse mortgage is one way to help accomplish that.”

About 95% of reverse mortgages are Home Equity Conversion Mortgages (HECM) insured by the Federal Housing Agency, says the Tribune article, going on to state that while HECMs cost more than traditional mortgages, they have no medical or income requirements, and the cash can be used however the borrower chooses; the amount of the loan depends on current interest rates, appraised home value, and the age of the borrower.

However, the article continues, reverse mortgages come with high upfront costs due to a mortgage-insurance premium of 2% of the home’s appraised value for HECMs, and counseling, origination and title transfer fees. Additionally, reverse mortgage borrowers are required to continue living in the home and pay taxes and insurance on the loan.

Advantages to a reverse mortgage include borrowers retaining the title to their homes and being able to use the loan money however they see fit, says the Tribune. It also lists disadvantages, including the high cost of taking out a reverse mortgage. The Chicago Tribune mentions the HECM Saver Loan, which charges only 0.01% of a home’s value up front, but doesn’t allow the borrower to borrow as much money as a regular HECM.

The article closes by mentioning that reverse mortgage foreclosures have been rare until the recent housing crisis.

“Because the borrower is responsible for paying taxes, insurance and upkeep,” Certner said, tough economic times have “put a lot of people in trouble, especially in hard-hit markets like Florida.”

Read the full article here.

Written by Alyssa Gerace

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