Reverse mortgage might enhance your quality of life

| Julie Pfitzinger - For The Catholic Spirit | November 17, 2010 | 0 Comments

The saying “home is where the heart is” applies to people of all ages, but perhaps especially to seniors, many of whom have lived in their homes for decades.

In addition to the emotional attachments they have established,  many have built up equity in their homes as well. A growing number of seniors are opting for a reverse mortgage, which allows them to access this equity as tax-free income, using the funds to improve their quality of life in a variety of ways.

“With challenges that come from managing expenses on a fixed income, senior homeowners are finding that a reverse mortgage can help them keep up with life’s expenses and improve their monthly cash flow,” said Tom Pinger, reverse mortgage consultant with Wells Fargo.

The funds from the reverse mortgage can be received monthly, used as a line of credit or dispersed as a lump-sum payment to the borrower, who must be 62 years old or older to qualify. Reverse mortgages have been insured by the Federal Housing Administration for more than 20 years and can be taken on the borrower’s principal residence only.

Counseling is required

All prospective borrowers must complete an educational counseling session with a HUD-approved counselor to understand the program and how it will impact their financial circumstances. The application process takes place after this step is completed.

“Family members or other trusted advisers are always welcome to attend the counseling session with the borrower. In fact, we encourage that,” said Pinger, who also is a parishioner at the Basilica of St. Mary in Minneapolis.

The loan amount from the reverse mortgage is dependent upon several factors: the age of the borrower, the current appraised home value and the interest rate. Closing costs are also assessed.

Pinger said reverse mortgages are what are referred to as non-recourse loans; the loan is due when the owner sells the house or dies, but the borrower (or the estate of the borrower) will never owe more than the home’s value at that time.

Long-term benefits of a reverse mortgage may include meeting daily or monthly living expenses, eliminating credit card debt or covering health care costs. The money can also be used to pay off the existing mortgage on the home if there is one.

Adapting home for aging

According to Pinger, seniors frequently use the income from the reverse mortgage to make much-needed repairs or to adapt their home in ways that can help meet their new physical challenges.

“Many seniors want to ‘age in place,’ that is, remain in their homes for as long as possible,” said Pinger. For that reason, special remodeling projects might include the installation of grab-bars in the bathrooms, better lighting, replacing carpeting with hardwood floors or installing a ramp at one or more entrances to the home. The cost of those repairs can add up, which is why having access to extra income can prevent seniors from putting off making an investment in these necessary projects.

When asked whether the economic downturn has led to greater interest in reverse mortgages among seniors, Pinger said that the reasons for taking out a reverse mortgage vary based on each individual’s situation.

“Certainly the economy has an impact on peoples’ finances,” he said. “From my own experience, I’m seeing many individuals interested in learning how a reverse mortgage might be able to give them financial peace of mind.

“The people I meet with all have their own individual situations. We always discuss the reverse mortgage in detail to make sure it is a good fit and meets their specific needs.”

For more information, contact Tom Pinger at (612) 801-2052 or Tom.Pinger@wellsfargo.com.

Reverse mortgage alternatives

Is a reverse mortgage right for you? There are other financial options to consider before committing to a reverse mortgage, according to a recent article on the AARP website.

  • Tapping other resources. Do you have substantial cash value in a life insurance policy that is no longer needed? Do you have investments or real estate holdings that aren’t providing income but could be sold? Are you eligible for any low-income assistance?
  • Downsizing. Do you really need to stay in your current home? Does it have more space than you need? Downsizing your living quarters can have many lifestyle advantages in addition to the cost savings.
  • Selling and renting. Homeowners who are being pinched financially should also think about selling their houses and renting instead. There are buildings and communities that cater to renters 55 and up. Selling a home, especially one that you’ve lived in for a long time and that has appreciated, can free up needed capital. By renting, you can let someone else worry about maintenance and landscaping.

Source: “Reverse Mortgage Alternatives,” http://www.AARP.org.

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Category: Senior Services