AOL Daily Finance: Reverse Mortgages a “Lifeline” for Low-Income Seniors

Reverse mortgages can be a lifeline for low-income seniors, reports a recent AOL Daily Finance article.

The product can be “very valuable” in situations where an eligible senior has home equity but not a lot of monthly cash flow, the article quoted Margot Saunders, a counsel with the National Consumer Law Center, as saying.

“If you are sitting on a mortgage and you can afford to make payments on it, and have home equity and other assets, this is probably not a good idea,” said Saunders. “But if you are 85 years old and have $250 a month in income and a $500,000 house, it’s a great idea no matter how much it costs, because the lender will give you money you don’t otherwise have.”

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However, Daily Finance goes on to advise interested borrowers against getting a reverse loan for the purposes of frivolous purchases, saying the loan proceeds should be used for necessary expenses.

The article also details the “pitfalls” of reverse mortgages, including high upfront origination fees and interest rates, although it mentioned the Home Equity Conversion Mortgage (HECM) Saver program. The HECM Saver has lower upfront fees, but typically higher interest rates and restricted borrowing.

Now that reverse mortgages have been securitized, the market is heavily in favor of the fixed-rate product; this necessitates receiving funds in a lump sum, but this isn’t a good idea, Daily Finance cautions. Instead, borrowers should opt for a variable rate mortgage that allows a line of credit that can be drawn from as needed.

“Homeowners who take the cash all at once may not have the ability to pay property taxes and insurance later, and HUD is directing lenders to foreclose,” said Saunders in the article. “The rules should be changed so there is an evaluation of the ongoing ability to pay taxes and insurance, or money should be kept in reserve.”

Read the full article here.

Written by Alyssa Gerace

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  • Forget the bad news and the problems with the AOL article.  The real significance of the article is the question which the reader wrote:
     
     
    “’What is your opinion about reverse mortgages?  So many financial planners are pushing this sort of thing, but I heard that fees are steep.’”
     
     
    The positive thing to carry away from this article is that “So many financial planners are pushing this sort of thing.”  There has never been a time I can remember reading this kind of statement in an article which is overall negative like this one.

    The best way to defeat negativity is to gain the endorsement of financial leaders.  We may not be there yet but it was very refreshing to see that we are making some headway. 

  • HUD, while saying that a reverse mortgage is a lifeline for low income seniors, still dont recogn ize that seniors, who live in stock co-operative housing, are denied their right to a HECM because HUD refuses to implement it since the HERA bill was signed in 2008.  As a rule, co-op seniors are “low to moderate income people” who have a lot of equity in their unit, but low monthly cash flow. Many of us have excellent credit, high FICO score, but because of what we live in, can not get a HECM, line of credit to help us live comfortable in our home.  The only option we have is to sell our place in this depressed real estate market and get our money out to rent.  That is what just happened to me.  HUD has put this onus on us and it is UNFAIR.    

    • akoolkat2,

      That is a truly harsh result.  It is too bad Fannie Mae stopped its Home Keeper particularly in Laguna Woods.  I truly wish there could have been a better result. 

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