Older Ohioans are turning to reverse mortgage
Faltering pension plans and the uncertain future of Social Security have prompted many older people here in Ohio and across the country to turn to a "Reverse Mortgage" as a way to bolster their retirement income but there are risks.
Six months into his reverse mortgage, semi-retired Bill, who asked that we not use his real name, says he's glad he decided to go for it.
A reverse mortgage allows older homeowners to borrow money against the appraised value of their homes. They retain ownership, responsibility for paying property taxes and maintaining the house. But now, instead of paying a monthly mortgage payment, they receive a monthly check to use as they wish. Sixty-seven-year old Bill took out his reverse mortgage as a way of avoiding monthly mortgage payments and to realize extra income.
While reverse mortgages have been around for some years, their popularity has dramtically increased during the past few years.
Tina Vogel Kuba sells reverse mortgages and other financial packages for Mortgage Corp of Ohio. She says seniors who want to get a reverse mortgage must first meet certain qualifications. For example, borrows must be at least sixty-two years of age, own and live in their homes.
Lending institutions providing reverse mortgages don't want a house when the loan comes due the loan must be re-paid when the owner either vacates the house, dies or enters a nursing home.
However, our retiree Bill says he might not have gone with a reverse mortgage if he had heirs because he says they might be disappointed to learn they won't inherit as much as they thought they would.
Bronwyn Belling is an expert on reverse mortgages for the American Association of Retired Persons. She says when it comes to heirs, Bill is in the minority. She says most adult children of aging parents contemplating borrowing against existing mortgages encourage parents to "go for it".
Based in Mansfield, Christin Henthorne provides credit counseling to people across the country, including many older Ohioans living in Columbus. She agrees with the AARP's Belling when it comes to the sentiments of adult children whose parents are weighing the pro's and con's of a reverse mortgage. She says sometimes adult children accompany aging parents to credit counseling sessions. They say, "Mom and Dad, I think you ought to look at this. It's a good thing."
Both Henthorne and Belling agree the reverse mortgage is a good bet if the bottom falls out of today's booming real estate market because borrowers will never owe more than the appraised value of their home.
All three women agree a reverse mortgage is not for everyone. Credit Counselor Hentorne says there are two major drawbacks. First, she says. its an equity depleting loan. That is, borrowers will be tapping into and perhaps, depleting the equity in their home. Secondly, she cautions, a reverse mortgage is an expensive loan to make, closing costs are much more expensive than those of a traditional mortgage.
Vogel-Kuba of Mortgage Corp of Ohio says she too counsels seniors away from reverse mortgages especially if they're planning to move. It makes no sense, she says, to go through the time and expense if you don't plan to stay in your house.
Christin Henthorne says credit counseling is required for seniors considering a reverse mortgage. She warns people to know all the facts before signing anything. experts agree the number of seniors who get reverse mortgages to grow as the baby boom generation enters retirement.