USA Today journalist Christine Dugas writes that when faced with dwindling savings and mounting debt, elderly homeowners are turning to reverse mortgages for a cash infusion to wipe out a monthly home payment and even help them save their home from foreclosure.
The article features Helen Yomine, an 86-year-old widow in Lake Forest, Ill., who recently applied for a reverse mortgage because her home, valued at $410,000, was about to go into foreclosure. Her reverse mortgage paid off her home mortgage and taxes she owed, leaving her with no monthly payments.
She still owns the home but will have to repay the loan, closing costs and interest when she sells it. If she stays in the home until she dies, the reverse-mortgage lender will be repaid when the house is sold.
"It’s a scary time when you’re alone and don’t have anyone to lean on," she says. "But the reverse mortgage will give me comfort and the ability to stay in my home until I die."
The article also points out that the loan limits have been raised to $625,500 for the remainder of the year. For now, this allows more elderly families to borrow enough money from a reverse mortgage to save their home from foreclosure.
"Our hope was that by raising the limit, more homeowners facing foreclosure and living in higher-valued homes might be able to take out a reverse mortgage and keep their homes," says Bronwyn Belling, director of the Reverse Mortgage Education Project for the AARP Foundation.
Of course the article touches on the costs involved in reverse mortgages and while the origination fees have been capped, not everyone is happy. "The costs are still pretty staggering for someone who hasn’t looked at it closely," Belling says.
In addition to the lender’s origination fee, the upfront fees include a reverse-mortgage insurance premium, and standard closing costs — plus there’s a monthly servicing fee and interest.
"If I were a consumer, I would focus more on the interest rate," says Meg Burns, director of the Federal Housing Administration Single Family Program Development. "That’s an expense that is paid out over the long term of the loan, and it’s a place where the product could be costly."
I have no problem with articles that point out the costs but they never present an alternative that is available. If the costs are “extremely” expensive and there is a better way for seniors to remain in their home comfortably, I’d love to learn more.