Reverse Mortgage - One Way to Pay for Home Modification or Health Care

Until 20 years ago, there were two main ways to get cash from your home: you could sell it—but then you’d have to move; or you could borrow against it, but then you would have to make monthly loan repayments.

There is a third way now, growing in popularity because of its versatility. A “reverse” mortgage is a loan against your home that you do not have to pay back for as long as you live there.

The Best Times talked with Ann Johnson, a Reverse Mortgage Consultant with Wells Fargo Home Mortgage in Kansas City.

BT: What does it take to be eligible for a Reverse Mortgage?
AJ: The prospective borrower must be 62—and, of course, own a house.

BT: What determines the amount of money available with this kind of mortgage?
AJ: Three things:

• The value of the property
• The age of the youngest borrower. For example, the younger of a couple
• The interest rate in effect when you close. There is a formula based on the 10-year Treasury bill

BT: Who is a good candidate for this loan?
AJ: Someone who is not planning to move soon, needs some cash to cover current and long-term care needs and has significant equity in the home. It does not need to be completely paid for, but if it is not, then part or all of the loan must be used to pay off the current mortgage, freeing the borrower from monthly payments.
I always suggest that someone investigating refinancing or taking out a home equity loan, explore the Reverse Mortgage as another possibility.

BT: Are there a lot of companies in this area that finance Reverse Mortgages?
AJ: Not too many: James B. Nutter, Financial Freedom, The Mortgage Authority, Inc., and Wells Fargo Mortgage Company, I believe are the ones that do.

BT: How can one get access to the resulting money?
AJ: The loan is very flexible:

• You can get it in a lump sum
• You can get a monthly payment for as long as you live (like an annuity). The FHA insures these loans, guaranteeing that the loan company won’t lose money or go after other assets a family might have
• You can get a line of credit that continues to earn interest and is available for you to use as you need it
• You can do a combination of the above
  

BT: In addition to being 62, are there other requirements.
AJ: A potential borrower must participate in a one-hour, HUD-certified counseling session. We send most of our potential customers to the Consumer Credit Counseling Agency downtown in the Red Cross building. (816-753-4384) for an in-person session. You can also do the counseling with AARP by phone (1-202-434-6082) or in person. This is a really good precautionary idea—making sure the Reverse Mortgage goes along with other financial advice. If, for example, a person will not be able to afford to stay in the home even with a Reverse Mortgage, getting one would not be an acceptable idea.

BT: Are there closing costs associated with this loan?
AJ: Yes there are. These are usually rolled into the loan as with other types of mortgages—but it’s not free—there are closing costs, as with any home loan.

BT: Is this a good time to consider the Reverse Mortgage option?
AJ: It really is. Interest rates are at an all time low. We don’t know how long this situation will last, though. Low interest rates mean more cash available at lower cost.

BT: How can a person learn more?
AJ: Any agent who handles Reverse Mortgages would be happy to give estimates and provide information. AARP has an excellent booklet that we use a lot called “Home Made Money.” The telephone number is 1-800-424-3410. Web: www.aarp.org/revmort. The National Reverse Mortgage Lenders Association also has information: (toll free) 866-264-4466. Web: www.reversemortgage.org.

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