Most seniors don’t use their home equity to finance retirement. But it is a back up plan if catastrophic expenses strike. And for some seniors that time is now.
Seniors took out 112,100 Home Equity Conversion Mortgages, a government-backed reverse mortgage, in fiscal year 2008, which ended September 30, up from 107,558 in 2007, according to the Department of Housing and Urban Development.
Even more seniors struggling to pay their bills may consider reverse mortgages next year. A survey of 800 age 65 and older homeowners released this week found that one quarter are either borrowing against their home or trying to sell it in order to generate income to survive the economic crisis, Crestwood Associates and Golden Gateway Financial found. The Oakland, Calif.-based Golden Gateway Financial also reports a 200 percent increase in calls to its reverse mortgage help center involving senior citizens facing foreclosure in the past three months.
New rules went into affect in November that make reverse mortgages a better deal for consumers. Older homeowners can now borrow up to $417,000 with federally insured reverse mortgages. And the fees that lenders can charge were lowered to origination fees of 2 percent on the initial $200,000 of the home's value (lesser of the home value or county lending limit) and 1 percent on the balance thereafter, with a cap of $6,000.
Here’s how to tell if a reverse mortgage is right for your financial situation.