Reverse mortgages offer seniors options

Interest in reverse mortgages has flattened in the last year but the loan product still offers seniors unique financial options.

Dino Guadagnino, reverse area manager for Wells Fargo Home Mortgage, said several factors have contributed to the reduced interest in reverse mortgages. “With declining home values, many people have decided to wait. But it’s still a great deal for seniors to tap for additional income,” he said.

“Many people misunderstand the reverse mortgage,” said  Dr. Austin Jaffe, PA Association of REALTORS®’ consulting economist and chair of the Department of Insurance and Real Estate at the Smeal College of Business at Penn State University. “They think it causes people to lose control of their homes but in reality, banks will send homeowners money based on the value of their house. This is the perfect financing innovation to solve a financial problem. Seniors can access the equity without losing the title to their homes. It’s designed to help people keep the title of their house until they want to sell or they die.”

Fees associated with the loans were often thought to be prohibitive but that’s changing. “There are costs involved, like origination fees, appraisals and other fees,” Guadagnino said. “But there are safeguards built in all along the line and we’re required to have HUD speak to the borrower. We have full disclosure and we try to meet with the family so everyone understands the process,” he added.

In addition, HUD lowered principal limits 10 percent earlier this year and that has accounted for some of the waning interest, Guadagnino said.

To qualify for a reverse mortgage, applicants need to be at least 62 years old, own their home or have a mortgage on the home.  How much applicants receive is based on their age and the value of the property. Proceeds from reverse mortgages can be used in any way, whether it’s to help with medical expenses, help a child to buy a home or to buy a second home, Guadagnino said.

Reverse mortgages are going to be used more and more in the future because they solve a problem very efficiently,  Jaffe said. “I believe generations from now, reverse mortgages will be fairly common as people retire. They will use the equity they’ve built up in their homes and they can continue to live in the home.”