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Hamptons Life

Dec 10, 2018 12:25 PMPublication: The East Hampton Press & The Southampton Press

Reverse Mortgages Can Create An Elder Care Lifeline

Dec 10, 2018 12:56 PM

Aside from his real estate practice at Douglas Elliman, Michael Daly holds a certification from the Seniors Real Estate Specialist Council, a branch of the National Association of Realtors that certifies real estate agents to meet the needs of maturing homebuyers and sellers.

Brokers with this designation have taken continuing education courses on age-restricted communities, age-in-place design, assisted-living standards, the Housing for Older Persons Act, using retirement investments for real estate transactions, prevention training against borrowing schemes, and reverse mortgages.

During a September presentation at John Jermain Memorial Library in Sag Harbor, Mr. Daly said even though reverse mortgages get a bad rap—they can be hard to understand, and the fees and interest they accumulate can be taxing for many residents who live on fixed incomes—they also can be a lifeline for aging homeowners.

“Reverse mortgages are truly not as good as some people, some lenders, hope and say it will be. It’s not the panacea that is going to allow you to live for the rest of your life without the need for money,” Mr. Daly said in an interview. “But it can be a safe financial vehicle for seniors.”

A reverse mortgage—also called a home equity conversion mortgage—converts the value of a home into cash.

Presenting alongside Mr. Daly, Hilary von Maur, the vice president of mortgage lender Family First Funding’s East Hampton branch, explained that, with a reverse mortgage, homeowners are lent the value of their home, while continuing to live in their home and retaining ownership. The payout can be monthly or in a lump sum depending on the type of reverse mortgage the homeowner applies for: to make a purchase, to refinance a home, or to open a line of credit.

Mr. Daly said many still remember the horror stories about seniors being taken advantage of by lenders in the early 2000 who were offering bad mortgages that led to the housing crisis in 2008. According to the U.S. Department of Housing and Urban Development, the loan has declined in popularity over the last decade, with half the amount of applications to national reverse mortgage lenders since 2009.

“But people shouldn’t fear them,” Mr. Daly said. “It’s not as risky or dangerous as they are chalked up to be. There are a lot of stop gaps and protections for consumers since the product first came out.”

However, Ms. von Maur said most homeowners don’t know that, with a reverse mortgage, they can never owe more than what their property is worth. What does happen is that the lender places a lien on the property—legally asserting the right to keep possession of the property until the debt is paid. But generally, the loan agreement won’t require repayment during the borrower’s lifetime as long as the property remains the borrower’s primary residence and the home is maintained. Repayment is triggered when the borrower moves, sells the property, fails to pay taxes and insurance, or dies. However, under the terms of some reverse mortgages, repayment can be mandated after a length of time, regardless of whether the borrower is still living in the home. Repayment can be directly taken out from the sale of the property.

In 2019, the Federal Housing Administration will cap reverse mortgages in Suffolk County at the assessed value of a single-family home or at $726,525, whichever is lower. Under FHA guidelines, Ms. von Maur said that lenders limit the loan amount—sometimes up to 40 percent depending on the age of the homeowner—to prevent the loan amount from exceeding the assessed value of the home or the county cap in their lifetime.

“Mortgage lenders will give you a percentage of the purchase price and it’s based on your age,” Ms. von Maur said. “Someone who is 80 years old would receive more money than someone who is 62 years old because, unfortunately, their life expectancy isn’t as long.”

Mr. Daly said reverse mortgages can be used to increase the options of older residents to contend with the challenges of aging.

“I see the biggest win and value of reverse mortgages for those that need to make changes to their home so that way they can age in place,” Mr. Daly said. “Many times seniors don’t live in homes with ground-floor bedrooms. It’s a struggle to go up and down the stairs. Many opt to sleep on the couch.”

At the end of the day, it can provide an income the homeowner can’t outlive.

“It helps older people with a fixed income stay in their homes,” Ms. von Maur said.

Many of the mature homeowners who opt for reverse mortgages choose them to pay off and consolidate debt, supplement Social Security, pension income or public assistance benefits, or to postpone Social Security benefits altogether to increase the monthly benefit. With the extra influx in cash, disabled and ill homeowners can pay for in-home care, medical expenses and long-term care insurance, and prepare the home for aging in place.

“People on the South Fork have a hard time understanding what a reverse mortgage is and the benefits they bring because our home values are so high,” Ms. von Maur said. “For instance, a home is worth $2 million and it’s owned free and clear. As people age, they live on a set income. Maybe they just need a little bit more income to make changes to their home or supplement their income.”

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