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Reverse mortgages help retired homeowners

As baby boomers begin to retire and the cost of living swells, more and more older Americans are turning to reverse mortgages to supplement their income. Virginia Cooperative Extension has joined the list of agencies in the Prince William County area offering one-on-one counseling for homeowners who want to withdraw equity from their home to support their quality of life.

“In the last five years, the number of clients we see each year has grown from four to 400,” says Marjorie Leon, Extension housing counselor in Prince William County.

Leon is a member of the AARP Reverse Mortgage Counseling Network, a collection of financial counselors across the United States who offer one-on-one counseling for homeowners who want to know more about the mechanics of a reverse mortgage. The U.S. Department of Housing and Urban Development approves agencies such as Virginia Cooperative Extension to deliver this counseling where needed. Leon meets with clients from Prince William County and the surrounding area.

To be eligible for a reverse mortgage, a client must be at least 62 years old, own his or her home, and have established a sufficient amount of equity in the home. Often, the senior has entirely or almost paid off the mortgage on the house. The greatest advantage is that a homeowner does not have to pay back the loan until he or she dies, sells the home, or permanently moves out.

“That’s why it’s called a reverse mortgage,” says Celia Hayhoe, Extension family resource management specialist and Certified Financial Planner®. “Instead of you paying it, it pays you.”

Reverse mortgages offer several ways to withdraw equity. “You can be paid in a regular monthly cash advance, a lump sum of cash all at once, or a line of credit that lets you decide when you need the money and how much you want to withdraw,” says Joe Botta, manager of Extension’s financial education program in Prince William County. “You may also opt to be paid in a combination of these methods.”

A reverse mortgage is not ideal for everyone, especially if a significant amount of cash is removed from a home’s equity.

“This type of loan is not for families who want to pass down their house to their heirs,” Hayhoe explains. “When reverse mortgage holders leave the house, then the house is typically sold or given to the lender.”

During each individual, one-time session, Leon discusses the pros and cons of a reverse mortgage and determines the eligibility of her clients.
“This allows seniors to safely ask questions about reverse mortgages from a neutral party without having to worry that a lender will nudge them into a financial arrangement that would not be ideal for them,” Leon says.

For more information about reverse mortgages, visit AARP’s website at www.aarp.org/money/revmort/ or the National Reverse Mortgage Lenders Association website at www.reversemortgage.org/.