Know the facts about reverse mortgages - Lincolnshire Review

By Lenna Scott The Senior Network July 27, 2012 1:04PM

Contributing columnist Lenna Scott

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Updated: July 27, 2012 5:06PM

LINCOLNSHIRE — When planning for long-term care, many seniors rely on the equity they have built up in their homes.

With the changes in the housing market and the ability to sell a home or condo not always certain, seniors and their families are looking for alternatives. A reverse mortgage may be a solution, but a new report from the Consumer Financial Protection Bureau finds many seniors are confused by this option.

"Reverse mortgages are complex and have the potential to become a much more pervasive product in the coming years as the Baby Boomer generation enters retirement," Director Richard Cordray said in a protection bureau press release. "With one in 10 reverse mortgages already in default, it is important that consumers understand what they are signing up for and that it is the right product for them."

Reverse mortgage specialist Nancy Stolbom agrees. Stolbom is with Security 1 Lending, a company specializing in reverse mortgages.

"I'm not here to sell you something you may not need, I'm here as an educator, a provider and a subject matter expert," she said.

Stolbom said it important for seniors and their families to understand the pros and cons of a reverse mortgage and take the time to investigate their options. She encourages seniors to contact their bankers or financial advisors for referrals.

"I think they need to do their homework," she said. "Don't just call somebody because they say they are a reverse mortgage specialist, get a referral."

The Federal Trade Commission describes reverse mortgages as "a product that allows you to convert part of the equity in your home into cash without having to sell your home or pay additional monthly bills." They are only available to individuals 62 and older.

In a traditional mortgage, the homeowner takes a loan and makes monthly payments to repay the loan, plus interest. In a reverse mortgage, the interest accrues, but there are no monthly payments. The total debt increases until the home is sold either by the borrower or the heirs. The proceeds of a reverse mortgage are generally tax-free.

"The biggest misconception is that the bank owns your home," Stolbom said. "What really happens is that you take a mortgage on your home, the client is always the title holder. However, they have to follow guidelines set out by the FHA and continue to pay their taxes and pay their insurance."

Stolbom, the Federal Trade Commission, and the financial protection bureau all counsel prospective clients to act carefully and consider risks and benefits.

"This is a conversation that they should be consulting with their family on," Stolbom said. "Seniors don't take on a lot of information in a quick matter; you have to be with someone who is patient who can walk them through the scenario and make it is as simple as possible. For the audience we are targeting, it's a very complex product."

The Consumer Financial Protection Bureau has put together a list of frequently asked questions to help understand reverse mortgages at www.consumerfinance.gov/askcfpb. Nancy Stolbom also offers free consultations for families considering reverse mortgages. She can be reached at nstolbom@s11.com.

Lenna Scott is the marketing director at The Wealshire, a short-term rehab, skilled nursing and assisted living community in Lincolnshire. She lives in Buffalo Grove with her h usband and two children. Contact her at lscott@wealshire.com.