Marjorie Bristow had heard about a reverse mortgage years ago but the part-time pottery specialist, 76, had no idea the financing option for older homeowners would be the answer to her property problems.
“It’s a long, hairy story but this thing really bailed me out,” said Bristow of the reverse mortgage that allowed her to stay on the curious, 2-acre parcel four miles west of the popular banana-belt town. “Just how much time do you have to listen?”
The reverse mortgage is aptly named because the payment stream is “reversed.” Most of the time, instead of making monthly payments to a lender (as with a regular first mortgage or home-equity loan) a lender makes payments to the consumer. But unlike a traditional home-equity loan or second mortgage, no repayment is required until the borrower no longer uses the home as his/her principal residence. You do not need to repay the loan as long as you (or one of the borrowers) continue to live in the house and keep the taxes and insurance current.
To qualify for a reverse mortgage, a consumer must be at least 62 and own the home. There are no income or medical requirements to qualify. Consumers often are eligible for a reverse mortgage even if they still owe money on a first or second mortgage. In fact, many seniors get a reverse mortgage to pay off a first mortgage, and Bristow landed one just in the nick of time.
Like most homeowners who get behind in payments, Bristow’s road to default and subsequently the brink of foreclosure was unexpected. In fact, lenders will tell you that the major reasons for default – divorce, loss of job, death – rarely are in anybody’s plans. For Bristow, the problems started when three Social Security checks, usually showing up like clockwork in her checking account via direct deposit, failed to appear.
“I had $2,200 in my checking account so I went out and bought a ’73 Jeep Commando rather impulsively,” Bristow said. “I had some money left over so I started buying just about everything that wasn’t nailed down. Well, that didn’t last long. When the social security checks didn’t show up, my checks began bouncing all over town. I think I owed just about everybody.”
In addition, Bristow’s son had moved away and his contribution to the monthly mortgage payment went with him. A couple of part-time renters also didn’t keep their word, so Bristow’s monthly mortgage payment of $764 was a figure far from her income.
“I didn’t know what to do,” Bristow said. “I didn’t want to sell the place because I didn’t know where I would go if I did sell it. But all of a sudden that didn’t make any difference because the auction (foreclosure sale) was staring me right in the face.”
Bristow contacted Wells Fargo about the possibility of securing a reverse mortgage on the property. The parcel appraised at $135,000, and the reverse loan of $92,500 paid off the underlying liens, thereby halting the foreclosure proceedings. In addition, Bristow will have to make no mortgage payments until she moves out or dies. Then, her estate either refinances the loan or sells the property.
“I don’t think I’ll be going anywhere,” Bristow said. “Unless it’s to visit my sister in upstate New York…she’s 90 and got a cattle ranch I’ve been dying to see. It’s been in her family a long time…they bought it straight from the Hudson’s Bay Co.”
While a reverse mortgage loan is outstanding, consumers continue to own the home and hold title to it. The money can be used for any purpose: daily living expenses, home repairs and home modifications, medical bills and prescription drugs, paying off existing debts, continuing education, travel, long-term health care or, in Bristow’s case, foreclosure prevention.
In addition, the borrower will never owe more than the home’s value. The home does not have to be sold to pay off the loan. The consumer (or the heirs) can pay off the reverse mortgage and keep the home. The proceeds from reverse mortgages are tax-free and do not affect Social Security or Medicare benefits. However, the funds may affect eligibility for certain kinds of government assistance, such as Medicaid or Supplemental Social Security Income, unless the payments are structured so that they are spent in the month received.
“I’ve got 103 cedar trees on this place, a nice area to garden, a hurricane fence…it works for me,” Bristow said. “And now I don’t have to worry about that mortgage payment.”
Tom Kelly’s new book “How a Second Home Can Be Your Best Investment” (McGraw-Hill, $16.95) was co-written with John Tuccillo, former chief economist for the National Association of Realtors, and is now available in local bookstores. Tom can be reached at firstname.lastname@example.org.
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