Homeowners Should Examine Reverse Mortgages
RENEE MONTAGNE, host:
Next, we look at a special kind of mortgage designed for older Americans - to be precise, people over the age of 62. Reverse mortgages provide a way to pull cash out of one's home to finance living expenses. They're complex and expensive. But as NPR's Wendy Kaufman reports, some seniors still find them appealing.
WENDY KAUFMAN: Janet and Donald Roth are a delightful couple in their mid 70s. As part of the process of getting a reverse mortgage, they have to meet with a housing counselor. The Ralph's have been careful with money. Their home is paid off. They have not debt. They even have retirement savings. But now Donald's 99-year-old father has to move to a new assisted living facility and will need some financial help.
Mr. DONALD ROTH: And he's developed a little bit of dementia, a little bit of wander-itis. And so they want him to move out and go somewhere. So we have another place and it will take him, but the monthly fee is about 60 percent higher and I need to be sure that I can cover his living expenses for some undefined period of time.
Ms. ANDREA MISIANO (Government Certified Housing Specialist, Consumer Counseling Northwest): Are you an only child?
Ms. JANET ROTH: Yes.
Ms. MISIANO: Are you the only that's stepping up?
Mr. ROTH: Yes, yes.
KAUFMAN: Roth is talking to Andrea Misiano a government certified housing specialist at Consumer Counseling Northwest, a nonprofit group. They're sitting in her office on the ground floor of a suburban Seattle office building.
Ms. MISIANO: And I'm here to pretty much protect you as a consumer. So I'm going to explain your options and explain kind of theoretically how a reverse mortgage works. And we're going to go over, of course, options and all the numbers and consequences of doing a reverse mortgage.
Mr. ROTH: Okay.
KAUFMAN: In a reverse mortgage, you borrow money against the equity in your home. The money can be given out as a lump sum, monthly payments or a line of credit. The loan, plus accrued interest, doesn't have to be paid back until you move out. If you die, your family can pay off the loan, or if they choose not to, the lender will sell the house to pay off the debt. Anything left over would go to your heirs. Misiano tells the Roths that while the loans can be useful, there is a downside.
Ms. MISIANO: It's going to be extremely expensive. The other downside is that there's less to leave your children. But if you're worried about taking care of your dad still, you know, that's still two generations away.
KAUFMAN: The maximum loan is $625,000. Interest rates can vary widely. But ordinarily, they are higher than rates on a traditional mortgage. Moreover, there are sizable fees. In the case of the Roths, who want a $150,000 in cash, the fees will be about $17,000.
Mr. ROTH: Yes, that's very high. But I'm expecting it to last for many years.
KAUFMAN: The retired engineer had done his homework and had considered other options. But Roth wanted the cash without the burden of monthly payments.
Ms. MISIANO: Questions, concerns.
Mr. ROTH: I'm pretty well satisfied.
KAUFMAN: Reverse mortgages have been in use for about 20 years. And historically, they were often linked to unscrupulous lenders, even outright scams. But today, says Meg Burns, a senior official of the Federal Housing Administration, nearly all the loans are government guaranteed and regulated.
Ms. MEG BURNS (Senior Official, Federal Housing Department): We have some caps on fees and charges, and we are constantly looking at the fees and charges that are actually assessed to the consumers. So we're looking at the loan files.
KAUFMAN: Still, some consumer advocates worry that even if the loans themselves are regulated, unscrupulous operators will find a way to exploit seniors, for example, pressuring them to invest the money they get with them. The bottom line, of course, is caveat emptor: let the buyer beware. And in the coming years, there are expected to be more buyers or borrowers. The first wave of baby boomers is now eligible to take out reverse mortgages.
Wendy Kaufman, NPR News, Seattle.
MONTAGNE: There's a Q and A on cashing in with reverse mortgages at our Web site, npr.org.
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