AARP Reviews Reverse Mortgages
As a leading advocate for the rights of older American, the AARP (American Association of Retired Persons) has been involved in advising retired people about the pros and cons of taking out a Reverse Mortgage. The AARP has expressed reservations about the Reverse Mortgage option and is attempting to work with relevant authorities and government bodies to ensure that the mortgage adequately serves the senior population which is it intended to help. Overall the AARP notes that the Reverse Mortgage “can be tremendously positive for borrowers.”
The Reverse Mortgage, also called a Home Equity Conversion Mortgage (HECM) was initiated in the late 1980’s by the Federal Housing Administration as a way for senior citizens to access the equity that they have in their homes while they continue to live in the house. Individuals or couples aged 62 or older may apply for a Reverse Mortgage and receive cash payments based on the value of their home. The borrower(s) may continue to live in the home for as long as they wish/are able, but when the borrower no longer lives in the house, the property reverts to the Reverse Mortgage lending institution. The lender can then sell the home and recoup the money that was paid out to the borrower through the loan.
Borrowers are responsible for paying the origination fees and loan’s interest fees as well as maintaining the property. Borrowers have several choices for drawing out their loan funds including receiving monthly cash payments, a line of credit or a one-time cash payment.
The AARP agrees that the Reverse Mortgage can offer a lifeline for many seniors who are struggling to manage on pensions and savings. While funds from a Reverse Mortgage can seem like a windfall to struggling retirees, the AARP wants potential borrowers to remember that, without careful planning, a HECM loan may cause problems down the road.
For one thing, senior homeowners must figure their budget to include, not only the loan fees, but also continued home maintenance, property taxes and homeowners insurance payments. These obligations are an integral component of the HECM loan agreement and failure to pay any of these expenses may result in foreclosure.
A second consideration is the relationship status of the borrowers. In order for a couple to take out a Reverse Mortgage as a couple, both partners must be 62 years of age or older. Even if both partners are listed on the home’s deed, if only one partner signs on the loan, when that person no longer lives in the house the house becomes the property of the lending institution and the second partner must leave the home.
A third concern revolves around the age of the borrower(s). Borrowers who choose a monthly payment option for withdrawing the loan’s funds receive a lower monthly amount if they take out the loan when they’re still in their early 60s. The sum of the monthly installments increases as the borrower’s age rises. The AARP advises senior citizens to wait until their mid to late 60s to apply for a HECM mortgage if the intention is to select a monthly payment plan.
One of the application prerequisites of a Reverse Mortgage is the requirement that borrowers attend a counseling session to learn all of the salient points of a HECM loan. The AARP, however, continues to collect and disseminate relevant data about the loan to ensure that potential borrowers can make an informed decision before they apply for the Reverse Mortgage.