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Taking out a reverse loan should be a family matter
By Marilyn
Kennedy Melia
Chicago
Tribune
Published
January 8, 2006
In the last year, a record 43,000 senior homeowners took out federally
insured reverse mortgages. That means thousands of families have been able
to broach some sensitive financial topics.
Experts say that before seniors decide to take a reverse mortgage, many
deliberate with family members about whether the loan will benefit them.
"It's fairly frequent that family members are involved," says Bronwyn
Belling, reverse mortgage specialist with the AARP Foundation. "We
encourage the family to be involved."
Often, when seniors seek a mortgage, they don't discuss their income, the
loan payment and other specifics with any family member other than their
spouses or partners.
Reverse loans, however, are distinctly different from regular mortgages,
and there's several good reasons for family members to be involved,
Belling says.
Reverse mortgages are similar to a home-equity loan: Homeowners can borrow
against the portion of their home's worth that's not mortgaged. But with a
reverse mortgage, funds that are borrowed don't have to be repaid until
the senior dies or moves.
It's often an adult child or a close family member who first hears about
reverse mortgages and thinks it could relieve the cash crunch they suspect
their parent or other close relative deals with, says Donna Wagner,
director of gerontology at
Towson
University
in Maryland.
"All families are different, but many have a hard time discussing money,"
Wagner observes. Moreover, parents may view such a discussion "as an
indication that the adult children no longer view them as capable of
making their own decisions."
Experts say some seniors won't even consider reverse mortgages because
they are reluctant to draw down the value of their house, the biggest
asset they have to leave heirs.
A government study conducted five years ago, which showed 75 percent of
seniors who had taken reverse mortgages had no living children,
demonstrates that seniors have a strong desire to keep the value of their
home intact to pass down to their children, Belling says.
If children urge their parents not to worry about inheritance issues, they
often begin to explore the concept, Belling adds.
Even if they decide a reverse mortgage wouldn't be appropriate -- and
there are many instances when they are not -- the discussion may open a
door to wider issues, Belling says.
For instance, reverse mortgages typically carry upfront fees that can
total several thousand dollars. Unless a senior expects to be in his or
her home for a certain length of time, the upfront fees may be deemed too
expensive, Belling says. "Our research indicates that age 75 is the
decision-making year on whether someone wants to remain in their house,"
says Belling. And, the average age seniors now secure reverse mortgages is
slightly under 75, she says.
The family of 96-year-old Rose Tellone, who has lived in the same home in
the western suburbs for decades, urged her recently to take a reverse
mortgage. She did, and now is able to hire full-time help so she can
remain in her house. "That's what I like," she says.
Tellone's nephew, Leo Verzani, accompanied his aunt to counseling before
she signed on to the reverse loan. Counseling is required before seniors
can receive a federally insured "HECM" reverse mortgage, the most popular
type.
The free counseling, provided by agencies approved by the U.S. Department
of Housing and Urban Development, or by a network of AARP-trained
advisers, often includes the senior and family members, says Jim Wheaton,
director for Neighborhood Housing Services of Chicago and an AARP
counselor.
It's beneficial if family members understand how the loans are structured
and what may be owed to a lender, Wheaton says. For instance, if a senior
lives in his or her home a long time, the amount owed to a lender could
exceed the appraised value of the home when the senior moves or dies.
However, there's a strict provision that the family or estate of the
senior homeowner will never owe the lender more than the value of the
home, Wheaton says.
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Address questions to Financing, Chicago Tribune, Real Estate section, 435
N. Michigan Ave., 4th Floor, Chicago, IL 60611. You may also e-mail
realestate@tribune.com.
