Advice To Seniors Considering The Reverse Mortgage

Leading Expert Offers Tips On What You Need To Know

April 21, 2009

Today's senior citizens have spent their lives building a family nest egg to ensure they can pay the bills after they retire. Despite the diversification in their portfolios, losing nearly half of their life savings has put older Americans in a panic about their financial futures.

Although seniors live robust lives, well into their nineties, many are worried they do not have 20-30 years to recover their lost savings. With talk of deflation and predicted hyperinflation it is prudent for our parents and grandparents to consider the next steps to remain financially independent through the coming years, says Frank N. Darras, the nation's leading disability and long-term care insurance lawyer. See www.darrasnews.com.

"The increasingly popular reverse mortgage has been shopped by lenders and targeted to homeowners over 62. This is a special mortgage that lets seniors convert equity in their homes into cash," says Darras. "This may be a viable option but it is not without risk."

Here is how it works:

Today's reverse mortgages are called Home Equity Conversion Mortgages (HECMs) and are insured by the Federal Housing Administration. HECMs allow senior citizens to tap home equity and not have to make monthly payments. According to HUD, the HECM is considered a safe plan that helps senior citizens have greater financial security. See http://tinyurl.com/q4o97.

"It pays to be very careful," warns Darras. "Even when the government is promising a reverse mortgage is a safe bet, there is a lot to know and it is important for folks to examine the fine print."

There are costs associated with an HECM. The lender can charge up to $2500 in origination fees and although capped at $6000, that is a lot of cash to come up with on a fixed income. Rolling that fee into the reverse mortgage can be painfully expensive. In addition, you will be charged closing costs, Mortgage Insurance Premiums, servicing fees and interest, says Darras.

"Make sure you crunch all numbers and after you see the upfront costs and remember, you are still responsible for property tax and hazard insurance. Work with a trusted advisor to uncover all potential expenses and the trappings of a reverse mortgage," says Darras.

Most importantly, don't let fear and the lure of an easy solution drive your decision. Even though new legislation and lower interest rates promise to make it less expensive to borrow, it can cost you in the long run, if you are not careful, says Darras.

"No matter what, the loan will have to be repaid somehow, in full. Usually that occurs when the homeowner dies. Understand other restrictions could cause premature payback of the loan so make absolutely sure you know what you are signing," says Darras.