Some say reverse mortgages are the way to go
Delaware Online, April 20th, 2008
Plan may be solution for older borrowers whose assets are dwindling, but experts say beware.
Jane DelSordo has been so happy with her reverse mortgage from WSFS Bank that she agreed to appear in the bank's newspaper ads.The
73-year-old, who paid cash for her Chadds Ford, Pa., town home in 1987
after selling property from a divorce, said she did her homework before
signing the papers about a year ago.
The
loan would eliminate her payments of about $1,000 a month on
outstanding debts, and still give her enough to renovate the entire
house -- including new windows, a new heater, and a hot tub downstairs.
"Basically,
I'm spending my house, instead of spending my savings -- which are
limited," DelSordo says. She still has more than $100,000 in home
equity to tap as long as she lives in her home, she says. And the
balance she owes will never grow beyond the value of her house.
"This
is like a lottery ticket," she told the bank. "I win or you win. If I
die, you win. But if I live ... I can be living here for nothing."
DelSordo
is one of more than 393,500 homeowners who have taken out a reverse
mortgage since the product came out nearly two decades ago.
A
reverse mortgage is essentially a home equity loan for older borrowers.
The most common type of reverse mortgage, which also has the most
consumer protections, is the Home Equity Conversion Mortgage (or HECM),
insured by the Federal Housing Administration.
Offered
to homeowners 62 or older, the loans allow seniors to convert part of
their home equity into tax-free income without selling their home or
giving up the title.
The
amount a borrower receives depends on the homeowner's age, the amount
of equity in the home and the interest rate. Homeowners can take the
money in a lump-sum payment, an income stream, a line of credit, or a
combination of the three. More than 60 percent of borrowers choose the
line of credit, according to the National Reverse Mortgage Lenders
Association.
Read more of this articleAbout Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com