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Reverse mortgages more popular
By Jonathan Peterson
In this case, the borrower might pay about $13,000 in
upfront fees, including a $4,000 loan origination
fee, $4,000 in mortgage insurance and a $4,000 "set-aside" to
cover servicing costs for the life of the loan, according
to Fannie Mae, the federally chartered lender.
Based on recent interest rates, such a loan might
come with an adjustable interest rate of about 6
percent, with interest charges compounding during
the life of
the mortgage.
Given that, homeowners should carefully weigh their
options, experts say.
Home equity loans can be a cheaper way to come up with
cash for people willing and able to make payments in
retirement.
Selling the house and downsizing to a cheaper dwelling
is another alternative, depending on the borrower's priorities.
If the goal is simply home repair, seniors should explore
whether their communities have low-cost loans available
for that purpose, said John C. Rother, director of policy
and strategy for AARP.
"It's good to have the option," Rother said
of reverse mortgages. "But it's not an option appropriate
for everyone."
But for people who are long on home equity and short
on cash, the reverse mortgage offers a key advantage:
Borrowers don't have to pay back the loan as long as
they stay in the house. A reverse mortgage may be the
only way that some people can afford to stay in their
own home.
"People who are using them, by and large, have
a huge degree of satisfaction," said Peter H. Bell,
president of the National Reverse Mortgage Lenders Association,
whose membership has more than doubled over the last
few years, to 540 firms.
"For a senior with a fixed income, taking on a
loan with monthly payments doesn't make a lot of sense."
Most reverse mortgages are insured by the Federal Housing
Administration, but loans insured by the agency are capped
at $362,790 in higher-cost regions such as Southern California.
In lower-cost areas, the cap is as low as $200,160.
In some cases, older borrowers seek reverse mortgages
to gird for future medical bills. Malcolm Greenhill,
a financial planner in San Francisco, recalled a 72-year-old
client with emphysema who feared his health would decline
further but lacked the income to pay for in-home care.
The man's home was worth $1.2 million.
"I put his mind at rest and said there's a way
here that you can tap into your equity," Greenhill
said. "A reverse mortgage would be a good option
for somebody like that."
Increasingly, big lenders are stepping up efforts to
market the loans and starting to offer some breaks in
their cost. They are motivated, in part, by the high
level of homeownership among older people. And they are
aware that baby boomers will be making big-ticket retirement
decisions in the coming years.
As some see it, reverse mortgages are destined to become
increasingly popular as the more than 75 million baby
boomers head into old age.
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