If you are among the first wave of baby boomers celebrating a birthday this year, or if you are concerned about the well-being of a loved one who has reached the age of 62 or older, you likely have heard about the reverse mortgage as an option in financial planning for retirement. Reverse mortgages are a major topic of conversation for financial planners, home health care professionals and CPAs across the country. In the last 10 years, reverse mortgages have grown into a multibillion dollar industry, with senior homeowners taking out nearly 80,000 such loans during the last fiscal year. Moreover, boomers continue to balloon the size of the over 62 demographic set and will continue to do so until 2030, when all boomers will be age 65 or older.
What is a reverse mortgage? It is a mortgage that allows senior homeowners, age 62 and over, to convert a portion of their home equity into multiple of payment streams without having to sell their home, give up title or take on a new monthly mortgage payment. The reverse mortgage earns its name because the payment stream is “reversed.” Instead of making a monthly mortgage payment to the lender, as with a traditional mortgage, the lender makes payments to the borrower in monthly, lump sum or line-of-credit payments, while the borrower can repay the loan at any time without penalty. Traditionally the loan is not repaid until the house is sold or at the time of the surviving borrower’s death.
But is it a safe option for seniors? The Housing and Economic Recovery Act of 2008 passed by Congress added new standards and requirements, resulting in considerable improvements to the reverse mortgage program. The new provisions greatly benefit senior homeowners who wish to access part of their home equity to help sustain their retirement. Reverse mortgages have a plethora of consumer safeguards and are the only financial product to require independent, HUD-directed counseling. Federal law requires that consumers be thoroughly counseled—prior to loan application—on the pros and cons of reverse mortgages and their competing financial options. It is generally recognized that a reverse mortgage is one of the most consumer-friendly mortgage loans available. Reverse mortgage lenders understand that senior homeowners want to responsibly borrow and stay in their homes. They also appreciate that consumers want to understand their loan documents with complete confidence. Consumer complaints about reverse mortgages are rare, and numerous surveys show that many reverse mortgage borrowers believe this product has improved their lives and provided them the money and security needed for retirement.
While this particular program does not fit the needs of all Americans, having the reverse mortgage option available for those seniors who want to take advantage of it is good for our financial system.
As the U.S. economy comes back full speed, consumers across the country should know that reverse mortgages are a safe, economically appropriate and cost-efficient way to augment their retirement, stay in their homes and live the American dream of homeownership and financial security.
This information is provided with the understanding that the Association is not engaged in rendering specific legal, accounting or other professional services. If expert assistance is required, the services of a professional should be sought.
Written by Scott Norman, immediate past president of the Texas Mortgage Bankers Association and provided as a public service by the Indiana Bankers Association
