When a client who married later in life and lived on a limited income — with no heirs to claim his assets — consulted Brett Morris, the senior loan officer for People's Bank of Commerce knew how to help the man improve his financial footing and escape mortgage payments in retirement.
Reverse mortgages have long been ways to help seniors enjoy their "golden years" or to help them tackle unexpected medical bills or living expenses.
Credit-counseling officials warn homeowners to carefully weigh options before considering a real-estate loan of any type.
To protect seniors, state and federal governments require mandatory counseling for senior homeowners considering a reverse mortgage.
Linda Cade, of Consumer Credit Counseling Services in Medford, warns against using reverse mortgages for quick bailouts on bills.
"It all depends on their situation," Cade says. "Some people do find it useful to pay off their mortgage and, if they have quite a bit of equity in their home, this can really help them in retirement."
"If they're planning to try and get a reverse mortgage for only a short period of time, it's a very expensive short-term loan and not something to get a little bit of money out."
For information, see www.cccsso.org
Even with drastic changes in the housing market in recent years, reverse mortgages can still be good deals for seniors in the right circumstances, say area real estate-loan professionals.
Reverse mortgages allow seniors age 62 and older to cash in on equity in their homes, pay off bills and boost retirement incomes while remaining in the homes until they pass away or — less commonly — sell properties and repay reverse mortgages. The homeowner gets to use accrued equity in a home, essentially selling the home "in advance" to a bank rather than leaving it to heirs, the government or other interests later.
"We haven't done as many as we were doing, and part of that is due to property values," says Morris.
"The gist of what I'm doing now — and the ones I'm helping — are those who owe very little on the property. It's still possible; you just have to weigh all the options and discuss the homeowners' needs."
One advantage to getting a reverse mortgage is that if a home's value drops, a homeowner's heirs won't be liable if selling costs are less than what was owed.
"If they're at a point where they have got some equity and they're in a position where getting rid of their current mortgage payment would really benefit them, it can be a good idea," notes Morris.
"In this economy, it seems like we should see more seniors looking into reverse mortgages, but we're seeing less because of those values dropping."
The downside of reverse mortgages is that they can involve extra fees, extensive paperwork and mandatory third-party counseling prior to reverse-mortgage approval, says Jim Becker, sales manager for Sun West Mortgage.
Becker encourages retirees to weigh all possible options and avoid reverse mortgages as short-term "bailouts."
"We still can help people," says Becker. "It just depends on the value of their property as to whether they can or should take advantage of it, and it depends on their situation and why they want a reverse mortgage."
If a reverse mortgage is chosen, two types are available. Most common in recent years due to fluctuating real-estate values is a lump-sum payment, which provides a one-time payment.
Less common are reverse mortgages that offer monthly payments.
A deterrent for some homeowners is that reverse mortgages can cost nearly twice as much as other types of real-estate loans, says Morris.
"Typically, fees are at around 2 percent," he notes. "I've seen them cost $6,000 and as much as $13,000."
If the circumstances are right, a reverse mortgage can make the difference between financial independence and debilitating stress over bills and retirement needs.
"If they get it for the right reasons, it's the last loan they'll ever have, and they get to live in their house for as long as they live," says Morris.
"They do have to pay taxes and insurance, but it can really make a big difference to get rid of a mortgage payment on a house they don't plan to sell during their lifetime."
A plus for heirs is that if the home's value drops and it can't be sold for the amount left on a reverse mortgage, they are not liable for anything.
"If the heirs are looking at this and owe $200,000 (for the reverse mortgage) and the property is worth $150,000, the property goes back to the lender, and it's all said and done," says Morris.
"On the other hand, if they gave a loan for $125,000 and the house is worth $200,000, the owner or their heirs can sell the property for $200,000, satisfy the reverse mortgage and walk away with the difference."