Article:
Reverse Mortgage Not Right for Everyone
Original location:
http://www.pittsburghlive.com/x/pittsburghtrib/business/s_557451.html
Pittsburgh Tribune-Review
By Jim Martin
Published: March 16, 2008
After years of monthly mortgage payments, older homeowners can turn the process upside down with a reverse mortgage.
The question is whether they should.
Reverse mortgages allow homeowners 62 and older to convert part of the equity in their homes into tax-free income.
In exchange for an advance cash payment for their home, participants live there rent-free until they die or move out. At that point, the home is sold to satisfy the loan or the estate can pay off the loan.
It's an arrangement that's won favor with a growing number of older Americans.
Reverse mortgages have grown into a $20 billion a year industry that issued more than 132,000 loans in 2007, an increase of 270 percent from just two years earlier, according to a report in the New York Times.
So, could a reverse mortgage be the answer to your financial problems?
Maybe, but local estate and financial experts urge senior citizens to proceed with caution.
"My professional view is there are inherent risks that need to be understood," said Bob Dwyer, an Erie lawyer who handles estate law.
The good news, he said, "It's a very easy way of coming into a large amount of a cash at a moment when it might be needed."
The downside?
"It also places them in great peril for serious financial consequences in the future. Later, you may find there is no equity left," he said. "You are at a very late point in your life to find you have insufficient funds to live."
Despite the increase in their popularity, reverse mortgages aren't yet common in this area, said Greg Bush, chief executive of Patterson Bush Financial in Meadville.
"I can't say whether I have a favorable or unfavorable opinion," he said. "I think it's a tool that can be utilized when it's necessary."
The key, he said, is making sure that it's not necessary For some, that's a goal that can be achieved through careful financial planning.
For those short of retirement cash, reverse mortgages can be an attractive option -- especially if there's no concern about leaving money for heirs, Bush said.
"If your plan is to leave the world with zero assets, not even a home, no kind of legacy at all, that is certainly a way to achieve that."
Greg Sorce, a principal at HBK Sorce Financial in Erie, urges people to look at other options -- especially if they have time to plan.
"If you sell the house, you can always invest the money, get a check every month and live in a nice house," Sorce said.
People who opt for reverse mortgages should factor in the expense and work of maintaining their homes.
"That's a big factor. If you don't have enough cash it's a real problem," Sorce said. "Children and grandchildren aren't going to want to put money into the house if the bank is going to get it when Dad dies."
The National Reverse Mortgage Lenders Association rejects the notion that reverse mortgages are a refuge for the poor and the unprepared.
"The reverse mortgage is an excellent planning tool that is used by homeowners in all walks of life to enhance their retirement years," the group says on its http://www.reversemortgage.org/ Web site.
Plenty of others are inclined to agree.
In 2003, U.S. Rep. Phil English, of Erie, R-3rd Dist., touted plans for a reverse mortgage initiative promoted by Fannie Mae, the nation's largest provider of home mortgage financing.
"The reverse mortgage initiative adds to the social safety net for area seniors, " English said at the time. "It makes it possible for seniors -- especially those living on a fixed income -- to cope with the rising tide of expenses ranging from increased medical costs to soaring property taxes -- while enabling them to stay in the house and home they worked a lifetime to earn."
Sorce has some concerns about the fees associated with reverse mortgages, but he doesn't entirely disagree with English's assessment.
"It's not so bad," he said. "You have to be cognizant of what you are leaving your beneficiaries, but it works for some people."
