More Reverse Mortgage Info

The Reverse Mortgages are still getting pushed hard. Ads can be heard on the radio almost everyday. Trusted spokespeople disclosing the benefits. But this article from Bloomberg warns Reverse Mortgages Promise Seniors Cash, Advisers Urge Caution. Here are some interesting parts -

Reverse mortgages are for people aged at least 62. The loans, which lenders charge fees equal to as much as 6 percent of a home's value, allow borrowers to use their home equity to get cash tax free. After the borrowers die, or move, the lenders are repaid when the house is sold.

Pending legislation may spur more senior homeowners to consider reverse mortgages. Those who have enough equity in their homes can qualify for loans up to $362,790 backed by the Federal Housing Administration. A housing bill in Congress includes a proposal to raise the payout to as much as $550,000 and eliminate the current limit of 275,000 reverse mortgages that the Department of Housing and Urban Development can insure.

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``Homeowners who have enough cash flow should stay away because there are better alternatives for tapping the asset of their homes, like a home equity line of credit,'' said Tom Orecchio, chairman of the National Association of Personal Financial Advisors in Arlington Heights, Illinois.

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Homeowners considering a reverse mortgage should take into account their age and how long they plan on being in their houses, Orecchio said. The loans are better suited for homeowners over the age of 75, who plan on being in their homes for a minimum of five years, he said. Borrowers under the age of 75 may outlive the equity in their homes and the fees and costs associated with the loan make an early move prohibitive.

Related financial products offered to borrowers may also tie up their cash. A survey by the American Association of Retired Persons' Public Policy Institute said that 9 percent of borrowers were offered investment products such as annuities and long-term care insurance when they got their loans. Peskin said it is a conflict of interest to sell reverse mortgages along with annuities or long-term care insurance, and won't deal with brokers who do.

Probably a few years down the road we will hear more and more pitfalls about reverse mortgages. People who lose their homes because they live too long. Families that owe money due to reduced home values. There will be stories. We will see grandmas crying on the evening news. Reverse mortgages will probably be like ARMs great tools for people who really understood all of the various consequences - but nightmares for the average person. They are complex legal and financial arrangements and should not be entered into lightly.