By Sam Baker, KERA Morning Edition Host
http://stream.publicbroadcasting.net/production/mp3/kera/local-kera-894224.mp3
Dallas, TX – In this current economy, some people may be considering a reverse mortgage - a loan that lets a person 62 or older convert the equity in a home they own free and clear - or nearly so - into cash. It's more complicated than it sounds, though. Todd Mark of Consumer Credit Counseling Service of Dallas will cover the topic in a series of online webinars about managing money. In this KERA Economy segment, Sam Baker talks with Mark about the idea behind a reverse mortgage.
Todd Mark: The purpose of this is to help people tap the equity in their home while they're living and for a lot of folks, this is going to help really fund gap what's happened to their retirement plan, which has obviously broken in the last 10 years.
Sam Baker: And that's key, you have to remain in the residence?
Todd Mark: If you weren't going to remain in the residence, a reverse mortgage probably wouldn't make sense for you. You'd want to sell it in a traditional way because you're going to get a lot more money selling it traditionally then going through a reverse mortgage. The benefit is you get to live in this house as long as you live so if you do this at 62 and you take all the money they'll give you up front, you get to remain there until you and if you're married or two names are on the loans until both of you have passed away.
Sam Baker: But it is a loan so at what point is it paid back and how?
Todd Mark: Okay so it is payable back either when you move or the last name on the loan passes away and at that point, the heirs of the estate would have the choice of either having it sold and the bank keeps it or you can pay it off. You can say alright this was how much was borrowed in the reversed mortgage over the last 30 years, we'd like to pay it back in full so that we can keep the property for another generation or two.
Sam Baker: Is there any circumstance under which you could lose your home?
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Todd Mark: Yes there are and there have been a bunch of states that are looking at foreclosures for reverse mortgage if people fall behind on the taxes or insurance. So if somebody falls behind on that, whose name is on it: it's the lender again and they could take it back from you.
Sam Baker: If you are considering a reverse mortgage, what steps should you take?
Todd Mark: Start researching on your own. Go online to basics of reverse mortgages and you can learn all the terms. If you go to reverse.org or reverse mortgage [.org], you'll be able to find all that you need to know. But shop around reverse mortgage lenders and see because there's going to be different interest rates. Now that's what's being subtracted from your equity. So the higher the interest rate, the less equity they have to give you whether it's in monthly payments or in a lump sum. You want to see what the fees are because not every lender charges the same points and origination fees.
At that point, that's when you're going to want to go to HUD.gov and contact your local HUD office, they can tell you a local HUD approved reverse mortgage housing counseling agency, again CCCS Dallas is one, and sit down with a counselor and they can go through all the basics. Some counseling agencies will charge you money because this is a HUD certificate that has to be issued. If you go through CCCS of Dallas, it is completely free.
Definitely you're going to want to talk about it with your family. If they don't understand that you're pursuing this, they may think that you're being scammed, taking all the money out of your home! So have them involved in the process. In addition to family, if you work with a financial planner, you're going to want to talk about tax implications, also what this means to your estate. If you've already drawn out a will, what goes to where, know that this obviously impacts it a lot.
But the key is this, Sam, is that if you were going to tap the equity in your home, do it once and do it the right way. Don't grab all the money up front and then say "gosh, I spent it all. I did this when I was 65, I'm 70, and now I'm broke. I have no more money to borrow from." It's no different from folks that have zero equity in a home in a forward mortgage.
Todd Mark is Vice President of Education with Consumer Credit Counseling Service of Dallas. You can find a schedule and signup for his online webinars and other aspects of managing money at: http://economy.kera.org/?p=5212