Mortgage Boom

With the decline of the stock market, low interest rates and rising taxes and medical costs, many Maine seniors are feeling financially pinched. A growing number are turning to a fairly new financial product, the reverse mortgage, to use the equity in their home to pay bills they would otherwise struggle to afford. Bangor, in fact, led the nation in the rate of growth of reverse mortgage in the past nine months, according to the National Reverse Mortgage Lenders Association. Use of reverse mortgages in Bangor increased 145 percent in the nine months ending June 30, while the national average increased 28 percent. The total number of reverse mortgages made in Bangor, however, remains small at 54.

For some, reverse mortgages can be a financial godsend allowing them to stay in their homes while using the equity to borrow money to pay bills and otherwise improve their lives. The beauty of a reverse mortgage is that the money does not have to be paid back until the borrower moves or dies. Basically, the bank gets its cut, plus interest, when the house is sold, either by the homeowner or an heir. Borrowers can take a lump-sum payment or fixed monthly payments or a line of credit. A problem, however, is that some people take out reverse mortgages too early – you must be at least 62 to get one – outlive the life of the loan and then find themselves without any equity in their house, usually their only significant asset. Reverse mortgages also do not work well in areas where property values are dropping.

It is telling that federal law requires those seeking reverse mortgages to first meet with a government-approved counselor. Would-be borrowers should keep in mind that they will have to pay appraisal and closing costs as well as other service fees, which in some areas can run as high as $10,000. No local banks offer reverse mortgages, which instead are offered by national lending corporations.

For many seniors, especially those who plan to move soon and those who want to leave their home to their children, other options such as conventional mortgages and lines of credit may make more sense. In some cases, selling a house and moving into a smaller one or a retirement community is the better option. State and local programs also offer short-term help to pay taxes and federal assistance may be available to pay for prescription drugs.

With the rapid rise in reverse mortgages, especially in Bangor, state lawmakers would be wise to look into them to ensure that Maine citizens are being fully apprised of their benefits and downsides. It would be better to be aware of any potential pitfalls now rather than for lawmakers to hear later from tearful seniors who signed away their homes in the hope of keeping them.