Reverse Mortgages

Thanks to Terry MacAvery for his input on this article.

The recent sluggish economy has had a devastating effect on people of all backgrounds, but Senior Citizens have had a particularly hard time. Their already limited incomes have been severely reduced by declines in the interest rates they can earn and by devaluation of their stock portfolios. This is especially problematic when considered in conjunction with the rising medical and insurance expenses that seniors must endure.

The value of SPHC property has skyrocketed in recent years, and many of our senior neighbors are "equity-rich", but hard-pressed when it comes to disposable income. This difficult state of affairs can be eased through what is known as a "reverse mortgage".

• Unlike an ordinary mortgage, which involves payments by the borrower to the lender, a reverse mortgage involves payments by the lender to the borrower in return for a mortgage on their home. Payments are tax-free, and repayment is not necessary during the borrower's lifetime, unless they sell the property or move out of the home. In the event of these conditions, the lender must be repaid in full or claim title to the property.
  
  
• If a reverse mortgage loan ends due to the death of the last surviving borrower, the loan must be repaid before the home's title can be transferred to the borrower's heirs. The heirs could repay the loan by selling the home, using other funds from the borrower's estate or their own funds, or by taking out a new forward mortgage against the home.
  
  
• There are various types of reverse mortgages. The most common is a "Home Equity Conversion Mortgage" (HECM). HECMs are the only reverse mortgages insured by the federal government, and generally provide the largest loan advances of any reverse mortgage.

Some aspects of reverse mortgages are ominous. Fees are higher than with traditional mortgages, and heirs risk losing very valuable property if they can't pay off what might represent only a fraction of its value in a very short time. In fact, some people firmly believe that reverse mortgages are simply devious ways that big banks prey on the elderly and scoop up their property at rock-bottom prices!

Of course this basic discussion of pros and cons won't address anyone's particular situation. As with any large transaction, it is important to discuss and fully investigate the terms and implications before signing any contract.

Our Board of Directors recently voted not to allow reverse mortgages on our properties. A reverse mortgage can have a profound impact on the quality of life for our senior neighbors, and this impact is worthy of deep consideration, and, in my opinion, at least some public discussion.

A comprehensive presentation of reverse mortgage information can be found on the AARP website and at reverse.org.