Seniors move forward on reverse mortgages

RALEIGH, N.C. — Trudy Semaske of Louisburg, N.C., and other seniors are tapping their largest asset — their homes — to generate cash to pay bills or upgrade their lifestyles.

Semaske, 86, got a reverse mortgage in the fall of 2006.

She took $2,000 in cash up front and established a line of credit that enabled her to withdraw an additional $3,000 last year — money she used to fix her roof, among other things.

"The reverse mortgage is a big help," Semaske said.

With the loan, Semaske will be able to remain in her house, said her son, Tom Lochte, who advised his mother on the reverse mortgage.

"Even if she lives to 100, she still has a place to live," said Lochte, whose mother has lived in her three-bedroom home for 30 years. "She wants to be where she is right now when she passes away."

Reverse mortgages remain relatively rare, but their popularity is rising across the country.

The loans, available only to seniors, enable borrowers to transform their homes into a source of cash.

However, the cash withdrawn eats into the equity built up in a home over the years.

With the first wave of baby boomers hitting retirement age this year, the rapid growth is projected to continue.

Chuck Griswold, a senior mortgage-loan officer at RBC Centura, expects reverse mortgages to become increasingly popular for homeowners who bought their homes decades ago at a fraction of their current value and are having trouble keeping up with maintenance and taxes.

Homeowners hit with recent property-tax re-evaluations for example, might be candidates.

"As I tell people, 'You have worked all your lives to pay for this asset. Now is the time for that asset to pay you back,' " Griswold said.

The growing market is attracting new lenders and making reverse mortgages more available than ever.

Consumer advocates caution that reverse mortgages aren't for everybody. The upfront fees are pricey, and the loans are difficult to understand.

Reverse mortgages should be used as a last resort for "people who have no other options, or few options, to draw upon," said Christena Schafale, director of information services for Resources for Seniors.

The Raleigh, N.C., nonprofit is a government-approved counselor for those interested in obtaining reverse loans.

Because reverse mortgages are complex, North Carolina requires face-to-face counseling before a consumer obtains one.

Bronwyn Belling, project manager of the AARP Foundation's Reverse Mortgage Education Project, worries that people are tapping the equity in their homes before they really need to.

"The money they borrow now, that money won't be available later," Belling said.

Belling also worries that some people are being talked into taking reverse mortgages, and that they are investing the cash they receive, which she considers a terrible idea.

For example, if you plow the money from a reverse mortgage into an annuity, you could end up paying double fees — once for the mortgage and again for the annuity.

As the name implies, reverse mortgages turn a traditional mortgage inside out.

Rather than the borrower making monthly mortgage payments to the lender, the lender pays the borrower.

The borrower can opt for a lump sum, monthly payments, a line of credit or any combination of the three. The money you borrow must be repaid with interest, but the payments aren't due until you die, sell your home or move out.

And though a reverse mortgage means heirs inherit less, lenders say the adult children of seniors often urge their parents to take out a reverse loan to maintain financial stability.

That concept is appealing. Reverse mortgages backed by the Federal Housing Administration, which account for about 90 percent of all reverse loans, rose 41 percent in the 12 months that ended in September.