Mayfield Chamber Hears About Reverse Mortgages

As more baby boomers near retirement without ample savings, reverse mortgages have grown in popularity, Joseph Wolf told members of the Mayfield Area Chamber of Commerce at a lunch meeting.

Wolf, a senior mortgage representative with Dollar Bank, said there's been a spike in the number of reverse mortgages in the past two years. He said the federal Department of Housing and Urban Development saw the need and has committed to the program.

Equity inverted mortages were first offered by Broadview Savings in 1978, but were not widely used until recently, Wolf said.

"The most common reason is to solve a problem," he said. "Maybe you don't have any savings and you need $8,000 to fix a roof."

He said there are a lot of misconceptions about reverse mortgages and noted that they're not for everyone. Known as home equity conversion mortgages, they are available to people ages 62 and older who have equity and want to stay in their homes. They can access that equity and eliminate monthly payments.

Equity available varies by age. At 62, you can get about 60 percent of the equity you have in your home. At 79, that increases to up to 72 percent.

However, there are upfront costs, which are from 6 percent to 8 percent. However, the effective costs nears 6 percent over time, Wolf said.

"Reverse mortgage is a very good long-term solution. It's not a good short-term solution," Wolf said.

At the end – when you leave the house for whatever reason – you are responsible for the amount borrowed, accrued interest, closing costs and service fees. In the case of heirs, those costs are paid when the home sells. And the owner or heirs get any profit if the sale proceeds exceed the balance of the reverse mortgage. However, there is no additional liability if the home's value decreases.

"It is a non-recourse loan. You or your heirs are not personally liable for any losses on the property. If market value declines, your loss is forgiven," Wolf added.

He said people with reverse mortgages still own their homes and can stay as long as they want. However, they are responsible for paying property taxes, keeping homeowners insurance intact and reasonable maintenance.

Reverse mortgages can be paid in lump sums, monthly payments or a line of credit. Wolf said money doesn't have to be used and can generate interest.

"The goal is how can I take that equity and stretch it over the longest period of time," Wolf said. "The key is to match it to the need."