Local seniors had the chance this week to learn about reverse mortgages, an oft-touted financial move but one that may not be right for every retiree.

Bill Morrison, advocacy volunteer with New Mexico American Association of Retired Persons, gave a short presentation on reverse mortgages during Carlsbad AARP Chapter 651′s monthly meeting at North Mesa Senior Center earlier this week.

The Home Equity Conversion Mortgage is FHA’s reverse mortgage program that allows senior homeowners to convert the equity in their home into cash or monthly payments or a combination of both. Although no repayment is required as long as the home is the borrower’s principal residence, there are many restrictions and fees that apply.

“There is so much misinformation on reverse mortgages that I’m here to explain the rules that govern reverse mortgages,” Morrison said.

“AARP does not endorse any reverse mortgage lender or product, but wants you to have the information you need to make an informed decision about these loans and other, less costly, alternatives,” he said.

“There are opportunities for scams and frauds. Only you can make the decision on a reverse mortgage, but get the facts and talk with a counselor first,” he said, noting that there is untrue and misleading advertising on television and through the mail.

Counselors will discuss program eligibility requirements, financial implications and alternatives to obtaining a reverse mortgage. They will discuss provisions for the mortgage becoming due and payable. Upon completion of the counseling, the homeowner should be able to make an independent, informed decision on whether it meets his or her needs.

Borrower must be 62 years of age or older, own property outright or have a small mortgage balance, occupy the property as their principal residence, not be delinquent on any federal debt and participate in consumer education and counseling by a HUD/FHA-approved counselor.

Property types that must meet all FHA property standards and flood requirements are single family homes or a one to four unit home with one unit occupied by the borrower, or a HUD-approved condominium or manufactured home that meets FHA requirements.

Mortgage amount is based on age of the youngest borrower, current interest rate and the lesser of appraised value of the conversion mortgage or the FHA mortgage limit. There are no income or credit qualifications required by borrowers, no repayment as long as the property is the principal residence and closing costs may be financed in the mortgage.

Closing costs from third parties can include an appraisal, title search and insurance, surveys, inspections, recording fees, mortgage taxes, credit checks and other fees. There will also be a $25 or $35 fee per month for lender loan services plus a mortgage insurance fee on a monthly basis as long as you live.

“Loan and closing costs, usually financed in the mortgage, still apply and the cost can be $5,000 to $6,000 up front,” Morrison said, noting that from his observation there are fees, fees and more fees and it’s important for the homeowner to consider if he or she can afford it.

“The truth in lending law still applies so you have three days to change your mind,” he added.

Pay-back time arrives when the home is no longer the primary residence for one year, on the death of the last surviving borrower, sale of the home or failure to pay property taxes, insurance premiums and property upkeep, maintenance and necessary repairs.

“It’s a win-win for lenders. Remember this is a loan and the lender expects to get their money back,” Morrison said.

Based on a home appraisal of $100,000 with the life expectancy factor figured in, a homeowner/borrower age 65 can draw $285 a month, age 70 can draw $326 monthly and age 75 can draw $381 a month.

Morrison explained that the borrowed money is not taxable. He reminded those at the meeting to use only federally insured type lenders and take time to research to find out if the reverse mortgage is right for them.

“You must receive counseling by a certified financial counselor, and it is required by law to advise you of other options,” he added.

Remember, if it sounds too good to be true – it probably is.

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