If you, a parent, relative or friend is a senior-citizen homeowner who needs or wants cash to enjoy retirement, the new book “The Reverse Mortgage Advantage” by financial columnist Warren Boroson provides an excellent overview of the choices available. Written in an easy-to-understand style, with lots of important facts and real-life examples, this guidebook explains virtually all the key reverse-mortgage considerations for senior homeowners and their heirs.
Just in case you are not familiar with a reverse mortgage, it is available to senior-citizen homeowners who are at least age 62. It is the opposite of a regular, or “forward,” mortgage. The reverse-mortgage lender pays money to the borrower, and no repayment is required until (a) the home is sold, (b) the borrower doesn’t occupy the residence at least six months a year, or (c) dies.
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Then the total payments made to the homeowner, plus accrued interest, must be repaid, usually from the sale of the property. These are “nonrecourse loans,” meaning the homeowner or the heirs are never personally liable for the principal and interest owed even if the homeowner lives to 120 and the total debt exceeds the home’s market value.
The author is a professional business writer. This well-researched book highlights virtually every reverse mortgage concern and explains the pros and cons. It places primary emphasis on protecting the senior homeowner, especially from so-called “advisers” who recommend spending reverse mortgage proceeds on questionable high-sales-commission products such as annuities and life insurance.
Heavy emphasis is placed on the requirement of all three nationwide reverse mortgage lenders — FHA (HECM), Fannie Mae and Financial Freedom Plan — for the borrower to obtain counseling from a qualified consultant before obtaining a reverse mortgage. Although Boroson recommends reverse mortgages for senior homeowners who plan to stay in their homes at least three to five years, he doesn’t hesitate to point out the pitfalls to avoid and when a reverse mortgage is not appropriate.
The book begins by explaining the basics, such as reverse-mortgage choices of lifetime income, term income, lump sums and credit lines (the most popular choice) or any combination. Right from the start, Boroson mentions the supposed high costs, typically 2 percent to 3 percent of the maximum reverse mortgage, the incorrect myths such as “the bank owns the house,” and even scary stories of early reverse mortgages, which proved costly to borrowers.
Because about 80 percent of reverse mortgages are guaranteed by FHA, heavy emphasis is placed on explaining their characteristics, including the major drawback of low limits for homeowners living in expensive homes. If your home is worth more than $500,000, the author advises, consideration should be given to the Financial Freedom Plan reverse mortgages, which have no maximum limit. One example explains why the owner of an $18 million home obtained such a reverse mortgage.
An annoying aspect of the book is some of the facts stated are incorrect. For example, one statement says the service fee for a FHA reverse mortgage is $35 per year. The statement should have instead said per month. Another section suggests shopping for owner’s title insurance. In fact, it’s the lender who requires the title insurance. Just don’t put too much faith in some of the fact statements, which aren’t always correct.
Chapter topics include “Reverse Mortgages for Total Beginners”; “Real People Talk About Their Reverse Mortgages”; “Those Scary Stories You May Have Heard”; “How Much Do You Really Know?” “Consider the Interesting Alternatives”; “Are You the Perfect Customer?: Where to Get Good, Unbiased Advice”; “Looking for the Right Lender”; “Getting a Reverse Mortgage, Step by Step”; “Bringing Down Those High Closing Costs”; “What to Do With All That Money”; “What Not to Do With All That Money”; and “Advice for the Children of Senior Homeowners.”
Whether you know a lot or a little about senior-citizen reverse mortgages, you will benefit from reading this new book because it takes a practical approach to explaining a very important topic for senior homeowners. Boroson isn’t trying to “sell” reverse mortgages. Neither does he disparage them, as he offers very balanced explanations. On my scale of one to 10, this superb new book rates a solid 10.
“The Reverse Mortgage Advantage,” by Warren Boroson (McGraw-Hill, New York), 2006, $21.95, 169 pages; Available in stock or by special order at local bookstores, public libraries, and www.Amazon.com.
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