Select Experienced Lender To Handle A Reverse Mortgage

Q. My parents are over 70, live in Virginia, are retired and own their home. They're interested in a reverse mortgage to supplement their retirement income.

Is this a good idea? What questions should they ask, and what should they be aware of?

A. Your parents sound as if they might benefit from a reverse mortgage. To qualify, you must be over 62, and your home must be mortgage-free (or virtually mortgage-free).

A reverse mortgage works like a conventional mortgage in that the house is used to secure the loan. Your parents would get the cash either in a lump sum or monthly installments. But unlike a conventional loan, your parents would pay nothing back until the house is sold.

A tiny percentage of home loans are reverse mortgages. Many lenders have never done one. And there's the rub. It's easy to work with a mortgage lender that say it has experience in this area, but does not do many reverse mortgages.

Your parents should work with an experienced lender that can help walk them through the process with a minimum of confusion. HUD has a link on its website (www.hud.gov) of reverse mortgage lenders that are approved.

You can find more information, and links to qualified lenders, at Fannie Mae's website: www.fanniemae.com.

There's also great information at www.reverse.org and www.aarp.org. I have loads of information on my own website, as well. Use the search engine at www.thinkglink.com to pull down helpful articles.

The best questions to ask revolve around price: How much will the loan cost? How much cash can I get from my house? How much equity will be left after five, 10 or 15 years?

A good reverse mortgage lender will be able to talk to you about how much these loans cost. There is a fairly steep upfront cost (but limited to no more than 2 percent of the loan amount), and if your parents only keep the loan for a couple of years, the effective annual percentage rate on the loan will be high.

Inheritance is another big worry. Although your parents might not be concerned about leaving behind an estate, many families do worry that they'll have nothing to leave to heirs.

The best part about a reverse mortgage is that the property continues to be owned by your parents, and they will benefit from any price appreciation in the neighborhood.

The paperwork can be complicated, so they may wish to review it with a lawyer before signing.

It would probably be a good idea if you were involved in the process to make sure your parents are asking all necessary questions and getting answers they can understand.

Call 1-888-973-8377 with any more Reverse Mortgage Questions.

Source: Courant.com