Reverse mortgages: Are they for you?

Frank Leben learned something about reverse mortgages Wednesday: "Too complicated."

But he also discovered during the seminar in Sun City that he and his family need to spend more time looking into how a reverse mortgage may be an option in the future.

And that's just what Rion Thomas wants people to do.

"There are a lot of misconceptions out there about just what a reverse mortgage can do for you, the advantages and disadvantages," said Thomas, a representative from Bank of America. "And I think often times there are people who could really benefit who just never look any further into it."

Thomas, who works as a reverse mortgage loan officer, spoke Wednesday at the Sun City Home Owners Association offices, explaining what a reverse mortgage is and how it may be the way to go for many seniors.

A reverse mortgage enables home owners 62 or older to convert part of the equity in their homes into tax-free income without having to sell the home, give up the title, or take on a new monthly mortgage payment. Essentially, instead of paying monthly payments to a lender, the lender makes payments to you.

What often turns people off reverse mortgages as an option, Thomas said, is the cost up-front to make it happen. The mortgage has to be insured, and that insurance can cost up to 2 percent of the assessed value of the home. So, if a home in Sun City is valued at $150,000, the insurance that would have to be paid up front in order to get a reverse mortgage could be up to $3,000.

"There are some people who look at the up-front cost and just immediately dismiss it," Thomas said. "But if you look past that, and look to the benefits you'll see for years following, I think many people would find this is a great option."

Thomas gave an example of one woman who would have benefited from a reverse mortgage. Her husband, who had taken care of all the bills, passed away, and she quickly fell behind on her $30,000 mortgage. Eventually she lost the house, even though it was valued significantly higher than the mortgage.

"Nobody around her, not her friends, her family, not her bank, nobody told her about reverse mortgages," Thomas said. "She could have gotten one, paid off what she owed, created another source of income and she would not have had to leave her house."
Thomas said the equity from the home can be used in several ways. The owner can take a lump sum payment, arrange monthly payments to last a certain amount of time, or turn that money into a line of credit that they can borrow from at any time. They can also arrange a combination of all three of those options.

"People often ask me when is the best time to apply for a reverse mortgage, when is the best age, and I'll tell them, ‘I don't know you well enough,'" Thomas said. "Because it really is dependent on your personal situation. That's why I like to get people in here and get to know them. That way I can tell them, you know, if I think this is or is not the right time."

Thomas said he hopes all seniors will familiarize themselves with the reverse mortgage, and not just for themselves.

"The thing is, it may not be right for you but it may be exactly right for a friend or loved one," Thomas said.

Leben said he is not yet sold on the benefits of a reverse mortgage, but "I definitely got some useful information. This is the kind of thing I'd want to have a long discussion with my wife and kids about, though."

For more information on reverse mortgages, visit www.aarp.org/money/personal/reverse_mortgages.

Jeff Dempsey may be reached at 623-876-2531 or jdempsey@yourwestvalley.com.