WGN-TV Show Notes – October 14, 2004
What keeps you awake at night? If you’re a senior, you probably stare at the ceiling wondering how you’re going to pay your bills.
But if you’re at least 62 years old and own your own home, you may be able to tap that equity to increase your cash flow each month.
The name reverse mortgage is a bit of a misnomer. You’re borrowing against your home’s equity just as if you took out a regular home equity loan. And you’re charged interest against the amount you borrow, just like a regular loan. The only difference, and it’s a big one, is that you don’t have to pay back anything until the house is sold.
“Nobody lays in bed at night thinking I should get up tomorrow and get a reverse mortgage. But people do lay in bed at night thinking I really need to take care of some home repairs. Or I ought to get a new car. Or, wouldn’t it be nice if I could travel and visit the family more frequently, or help my grand daughter with her books,” says Peter Bell, National Reverse Mortgage Lenders Association.
That’s what James Simmons is doing with the $101,000 he got when he took out a reverse mortgage on his home of 37 years.
“I’m using it to send to my grandkids in college. Three of them are at down at Spellman College and another at Stanford University and another at Clark College. So I’m going to help them further their education,” says James Simmons, reverse mortgage borrower.
This year, some 40,000 seniors are going to get a reverse mortgage to increase the amount of cash they have at their disposal.
“You can get cash, a line of credit or monthly income for any specified period. It could be a lifetime or any shorter period of a combination of those with no payback as long as you stay there,” says Roger Reynolds, Wells Fargo.
Super-low interest rates have helped reverse mortgage borrowers nearly double the amount of cash they can get out of their home.
“When I started in this business 5 years ago, a 62-year old, the youngest eligible borrower, received roughly 38 percent of the value of the house. That same couple at today’s interest rates will get nearly 70 percent of the value of the house,” Bell says.
Although low interest rates has helped propel interest in reverse mortgages, many seniors still worry that if they tap their home equity now, they won’t have anything left for their heirs after they die.
“You have the entire value of the house, 100 percent, appreciating in most markets these days at 6, 7 or 8 percent. But you have interest accruing on a much smaller percentage at a much lower rate. In most cases, there is still a significant sum left at the termination of the loan,” Bell says.
Some seniors are also concerned that the lender will take title to the house. That also isn’t true. Just like a conventional mortgage, title stays with the homeowner.
“If you want to redeem the house, you can give them all the money back,” Simmons says.
But with nothing due until the home is sold, you’ll have the cash available to pay medical bills, help your grandchildren, or buy the things you need to make your garden grow.
Just 300 lenders out of maybe 8,000 companies nationwide actually do reverse mortgages, so you need to search carefully to find a lender who really knows how to make this happen for you. Talk to local housing counselors or an account manager at your local bank branch. They should be able to help point you in the right direction.
Copyright Â© 2004, WGN-TV