What Boomers Should Know About
Reverse Mortgages For Mom And Dad
Financial planners say that baby boomers whose parents are considering a reverse mortgage should offer this advice: Break glass only in an emergency.
Although planners say that in limited situations a reverse mortgage can be a useful tool for maintaining quality of life, they qualify this assessment by adding that it should only be a measure of last resort.
A reverse mortgage is a home loan that lets a homeowner, age 62 or older, take a portion of the equity in the home in cash. No repayment is required until the borrower no longer uses the home as a principal residence. Reverse mortgages available through the U.S. Department of Housing and Urban Development are federally insured.
The use of reverse mortgages is on the rise, according to the National Reverse Mortgage Lenders Association, Washington. NRMLA cites HUD statistics that indicate home equity conversion mortgages from October 2003 through January 2004 totaled 8,700 loans, an increase of 76% over the same period ending January 2003 when loans totaled 4,948.
Population trends suggest those numbers could grow. The population of U.S. citizens age 60 and over is expected to grow to 82,501,033 in 2025 up from 44,158,531 in 1997, according to the U.S. Census Bureau. In 2025, that age group is expected to account for 24.6% of the population up from 16.5% in 1997, it continues.
NRMLA says this is a good thing. Where appropriate, a reverse mortgage can allow seniors to take care of their own needs and live comfortably and can ease concerns of their children, NRMLA says. It cites examples of people who have benefited from reverse mortgages, which have allowed them to accomplish everything from providing more income for daily living expenses to altering a home for a wheelchair-bound spouse.
But, financial planners say reverse mortgages are most appropriate for those who have no other assets than their homes. They add that for those who are considering a reverse mortgage to pay for medical expenses, it may be better to spend down and qualify for Medicaid.
In addition, they say, it could cause tension with boomer children who realize they will not inherit the full equity in a house.
It would truly have to be the last source for income because at the end of the day there is not anything left, says James Holtzman, a certified financial planner with Legend Financial Advisors, Pittsburgh. If a person is tapped out of resources, then it can be a viable option, he continues.