Reverse Mortgages: Boomers Increasingly Rely On Risky Loans

More baby boomers are tapping into their home's equity to take out so-called reverse mortgages potentially creating financial problems down the road.

Here's another grim sign for boomers looking ahead to retirement.

More of them are tapping into their home's equity to take out so-called reverse mortgages, according to a new report by MetLife, the nation's largest issuer of these types of loans. Of homeowners who are considering a reverse mortgage, one in five are "leading edge baby boomers" between the ages of 62 and 64, as compared to almost one in 20 in 1999, according to the report.

“It spells trouble,” said Stephanie Moulton, a professor at Ohio State University and a former reverse mortgage counselor for AARP, in an interview with Forbes.com.

A reverse mortgage allows a homeowner to stay put while tapping into the equity she's already built up in the property. Once you've signed the paperwork--and paid some hefty fees--the bank then will send you a monthly check or a lump sum that is paid off once you sell the home or die.

Reverse mortgages are available to homeowners who are at least 62 years old. For retirees looking to supplement an existing nest egg, they can make a lot of sense. But these days more and more homeowners are just using the monthly cash flow to make ends meet.

"In the past, the typical borrower was an elderly widow who took out this loan to supplement her meager income," begins the report. "But now ... those in their late 50s and 60s, many who have been especially hard hit by the ongoing recession, may be starting to think about reverse mortgages as a solution. They are struggling financially to pay for
everyday expenses, as well as assist their children and elderly parents."

The report goes on to explain that if these boomers draw down their home equity in their early 60s, they risk losing a future financial safety net that they could very well need, given that average life expectancy in America is rising, passing 78 years last spring, according to the Centers for Disease Control and Prevention.

Like so many financial products, a reverse mortgage can be helpful or harmful depending on how you use it. To navigate the process, check out AARP's materials on the subject, which provide both basics to help you understand how the loan works as well as 10 things you should know before signing the dotted line, including information on various restrictions and fees.

The Federal Trade Commission and the Department of Housing and Urban Development both offer helpful tips on how to avoid reverse mortgage scams that push homeowners into unnecessarily expensive loans.

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Comments

[Carl90]

04:35 PM on 04/22/2013

If a borrower has a much higher interest rate than the reverse mortgage interest rate, paying off the interest and even cutting into the balance is often less of a payment. We don't have to view reverse mortgages as an instant depletion of equity, but we should be open to viewing it as a versatile tool for those whom need one. Find out how much you can qualify for at http://rmcalculator.com

[jackpaul637]

01:57 PM on 04/01/2013

I appreciate the information offered in this article. I would say that the market is more on the rise and and becoming more stable. Seniors are flocking to this program for many good reasons - allows them to pay off mortgage and receive income for life without having to make monthly mortgage payments. More at
http://www.reversemortgagelendersdirect.com/reverse-mortgages-how-they-work/

[justathoughtorthree]

10:15 PM on 08/10/2012

Bankers never cease to amaze me. All their creative wizardry in scheming the masses out of money and making it seem that they are benevelent.

[Barry Laycock]

07:20 AM on 06/05/2012

Hey, would Robert Wagner lie to us?

[roshni]

12:20 PM on 04/26/2012

Be very careful if you do this. You are responsible for taxes.

[gunthli]

07:30 AM on 05/21/2012

Remember that you get a one time gain of your house if you sell it after 55. That income is taxed at 15% rather than the 28% ordinary income rate.

[Referee59]

08:52 PM on 07/01/2012

That one-time law changed years ago. Married couples who lived in their home for at least 3 of the last 5 years can take the first $500K and only then pay tax on the profit at whatever their personal tax rate is. This can be done over and over, no matter your age, but you must have owned the home for at least 2 years. Single filers take the first $250K.

[dolly weimaraner]

10:01 AM on 04/21/2012

reverse mortgages were created by the dems who wanted all their poor constituents to afford housing despite their inability to afford it. listen to the house hearings where Rangel and company were complaining to banks they were being too selective and responsible on who qualified for a loan. God forbid you have the means to qualify for a loan. And if that isnt enough.......its personal responsibility to live within your means. something liberals dont understand b/c the state should take care of you cradle to grave.

[roshni]

12:18 PM on 04/26/2012

You are vermin.

[ryker88]

01:04 PM on 04/26/2012

No, they were created by the greedy GOTP and corporate banks (some of whom even suggested and helped applicants to falsify their incomes) as a way to screw the hard working middle class even further- the middle class who are burdened with much higher tax rates than people like Romney. The banks KNEW some people could not pay back their loans and didn't care. Some people who would qualify for loans were illegitimately refused loans. You must have been in a cave somewhere when all this happened. Reality check!

[linda91254]

01:23 PM on 04/26/2012

The article is about REVERSE mortgages. Perhaps you were in the cave

[roger98]

10:16 AM on 03/30/2012

Just one more way to screw people out of there property and wealth and hard work !

[JoeBlough]

02:53 PM on 04/26/2012

Only if you knowingly sign up for it. Youcan only get what you ask for.

[larry2020]

06:35 AM on 03/24/2012

my father who lives in new york just got a reverse mortgage, he worked with a company called senior finance in manhattan, they were very honest and upfront about the program. they even wanted my sister and i to all meet and go over the program. i think their web-site is senior finance.com

[SeniorEquityFinancial]

06:10 AM on 03/23/2012

A few points to clarify. Yes, a reverse mortgage is a loan against your home. You DO NOT sell your home to the bank. You remain title to the property with the ability to refinance or sell your home in the future like any mortgage taken against your house. The fees are comparable to other FHA mortgages. They are typically financed into the mortgage and not paid at closing. Most mortgages are not designed for the short term and neither are reverse mortgages. There are a lot of great ways for homeowners to leverage their equity through a reverse mortgage, but education is the most important part like any financial decision. We have great resources at our website http://www.seniorequityfinancial.com/.

[palsimon]

06:34 PM on 03/21/2012

http://www.palsimonsintelligentsia.org/Palsimon%27s%20World.htm Problem for reverse mortgage foreclosure victims. Many homeowners with reverse mortgages could not have predicted Florida home owner insurance premiums would skyrocket, businesses they were in would decline, the bottom would drop out of the economy, their home values would plummet. And they find themselves unable to keep up with terms of a reverse mortgage, unable to survive, and possibly be foreclosed and find themselves homeless in the streets.

[MoreFreedom]

05:40 PM on 03/21/2012

This article assumes we're unintelligent and unable to take care of ourselves. That "they risk losing a future financial safety net" may be true for some, but not for others.

A reverse mortgage is a means of tapping the equity in one's home, typically selling the home to the company for an annuity (i.e. a monthly income stream) that lasts until you die, and then the company gets your home.

[LMDAustin]

01:20 AM on 03/22/2012

I'm so surprised you got this past the mods.

[SaveRMiddle]

02:14 PM on 03/20/2012

Another example which represents a permanently degraded middle class who not long ago was hopeful they could not only retire comfortably but had an even bigger dream.... an inheritance they could pass onto their children. Poof!

[elbzee]

04:25 PM on 04/06/2012

Poof! Indeed! Absolutely astonishing what we are witnessing in the year of 2012.

[JoeBlough]

02:58 PM on 04/26/2012

Just wait if Romney gets in. All he knows is finacial wheeling and dealing. This will be the beginning of a major middle-class collaspe.

[jmbsjy]

08:20 AM on 04/13/2012

My husband and I are experiencing the "poof" first hand. Retirement isn't going to be what we thought. Depressing and scary.

[JoeBlough]

03:00 PM on 04/26/2012

As long as you have your health, all the rest can slide.