RISMEDIA, April 7, 2008-A survey of 213 homeowners who have received reverse mortgage loans found that the number one reason for the loan is to pay for daily living expenses. Only 3% say they used the funds from a reverse mortgage loan to take a vacation.
The survey was conducted in January by Consumer Credit Counseling Service of Greater Atlanta, Inc., a credit counseling agency that provides reverse mortgage counseling. The homeowners average 74 years old and have lived in their homes an average of 18.5 years. The average purchase price of their homes was $95,554 and the respondents said that the current value of their homes was approximately $221,997.
When asked the question, “What prompted you to obtain a reverse mortgage loan?” the responses were:
— Budget too tight – 19%
— Need more liquid assets on hand – 16%
— Home repairs and maintenance – 15%
— Provide care for dependents, pay medical bills – 8%
— Pay property taxes and homeowner’s insurance – 7.23%
— Falling behind on monthly payments – 6.25%
A person must be 62 years of age or older to be eligible for a reverse mortgage. A reverse mortgage is a loan that allows homeowners to convert the equity in their homes into tax-free income without having to sell the home, give up the title, or take on a new or additional monthly payment. Loans must be repaid when the homeowner no longer lives in the home.
“We expect the demand for reverse mortgages to grow significantly as baby boomers reach retirement and need funds to meet daily expenses,” said Sue Hunt, manager of reverse mortgage counseling for CCCS. “It is important for homeowners to educate themselves about reverse mortgages. Credit counseling can help them understand how these loans work.”
While 79.4% of the respondents are retired, 10.5% work part- time jobs, nearly 5% work full-time and another 5% said they were looking for a job.
Most reverse mortgage lenders require homeowners to obtain counseling prior to receiving the loan. To qualify for a reverse mortgage, a person should have a significant amount of equity in their home and the home must be in reasonably good condition.
Although income and credit history are not considered in securing a reverse mortgage, CCCS believes it is critical for homeowners to review their entire financial situation during counseling. Reverse mortgage clients need to develop effective budgeting skills to meet periodic expenses, such as property taxes and homeowners insurance.