Consumers Getting Warnings on Reverses

By Brad Finkelstein

NEW YORK-The growth in the reverse mortgage program is making more than one consumer advisor tell seniors while the product could be beneficial, not to rush into getting one of these loans.

As part of the stimulus package, changes were made to loan criteria for the Federal Housing Administration Home Equity Conversion Mortgage that made those loans easier to obtain.

Bills.com recently had eight pieces of advice for those nearing retirement age looking to salvage their savings in the wake of the collapse of the stock market.

The last item on the list: Consider a reverse mortgage. "If you own your home outright, consider looking into a reverse or home equity conversion mortgage now or in the future," said Ethan Ewing, president of Bills.com.

His caveat for someone considering getting a reverse mortgage loan is to make sure to research the topic carefully carefully, as these loans are not right for everyone.

Long-term care and disability attorney Frank N. Darras says the reverse mortgage "may be a viable option but it is not without risk.

"It pays to be careful. Even when the government is promising a reverse mortgage is a safe bet, there is a lot to know and it is important for folks to examine the fine print."

The biggest issue, he said, is the costs of the loan. Although fees are capped at $6,000, that is a lot of money for someone on a fixed income to come up with.

There are also closing costs plus the mortgage insurance premium, servicing fee and interest.

"Make sure you crunch all numbers and after you see the upfront costs and remember, you are still responsible for property tax and hazard insurance. Work with a trusted advisor to uncover all the potential expenses and the trappings of a reverse mortgage," Mr. Darras said.

He also told seniors not to let fear and the lure of an easy solution drive a decision to get a reverse mortgage.