If you, a parent, relative or friend is a senior-citizenhomeowner who needs or wants cash to enjoy retirement, the new book “TheReverse Mortgage Advantage” by financial columnist Warren Boroson providesan excellent overview of the choices available. Written in aneasy-to-understand style, with lots of important facts and real-life examples,this guidebook explains virtually all the key reverse-mortgage considerationsfor senior homeowners and their heirs.
Just in case you are not familiar with a reverse mortgage,it is available to senior-citizen homeowners who are at least age 62. It is theopposite of a regular, or “forward,” mortgage. The reverse-mortgagelender pays money to the borrower, and no repayment is required until (a) thehome is sold, (b) the borrower doesn’t occupy the residence at least six monthsa year, or (c) dies.
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Then the total payments made to the homeowner, plus accruedinterest, must be repaid, usually from the sale of the property. These are”nonrecourse loans,” meaning the homeowner or the heirs are neverpersonally liable for the principal and interest owed even if the homeownerlives to 120 and the total debt exceeds the home’s market value.
The author is a professional business writer. Thiswell-researched book highlights virtually every reverse mortgage concern andexplains the pros and cons. It places primary emphasis on protecting the seniorhomeowner, especially from so-called “advisers” who recommendspending reverse mortgage proceeds on questionable high-sales-commissionproducts such as annuities and life insurance.
Heavy emphasis is placed on the requirement of all threenationwide reverse mortgage lenders — FHA (HECM), Fannie Mae and FinancialFreedom Plan — for the borrower to obtain counseling from a qualifiedconsultant before obtaining a reverse mortgage. Although Boroson recommendsreverse mortgages for senior homeowners who plan to stay in their homes atleast three to five years, he doesn’t hesitate to point out the pitfalls toavoid and when a reverse mortgage is not appropriate.
The book begins by explaining the basics, such as reverse-mortgagechoices of lifetime income, term income, lump sums and credit lines (the mostpopular choice) or any combination. Right from the start, Boroson mentions thesupposed high costs, typically 2 percent to 3 percent of the maximum reversemortgage, the incorrect myths such as “the bank owns the house,” andeven scary stories of early reverse mortgages, which proved costly toborrowers.
Because about 80 percent of reverse mortgages are guaranteedby FHA, heavy emphasis is placed on explaining their characteristics, includingthe major drawback of low limits for homeowners living in expensive homes. Ifyour home is worth more than $500,000, the author advises, consideration shouldbe given to the Financial Freedom Plan reverse mortgages, which have no maximumlimit. One example explains why the owner of an $18 million home obtained sucha reverse mortgage.
An annoying aspect of the book is some of the facts statedare incorrect. For example, one statement says the service fee for a FHAreverse mortgage is $35 per year. The statement should have instead said permonth. Another section suggests shopping for owner’s title insurance. In fact,it’s the lender who requires the title insurance. Just don’t put too much faithin some of the fact statements, which aren’t always correct.
Chapter topics include “Reverse Mortgages for TotalBeginners”; “Real People Talk About Their Reverse Mortgages”;”Those Scary Stories You May Have Heard”; “How Much Do YouReally Know?” “Consider the Interesting Alternatives”; “AreYou the Perfect Customer?: Where to Get Good, Unbiased Advice”;”Looking for the Right Lender”; “Getting a Reverse Mortgage,Step by Step”; “Bringing Down Those High Closing Costs”;”What to Do With All That Money”; “What Not to Do With All ThatMoney”; and “Advice for the Children of Senior Homeowners.”
Whether you know a lot or a little about senior-citizenreverse mortgages, you will benefit from reading this new book because it takesa practical approach to explaining a very important topic for seniorhomeowners. Boroson isn’t trying to “sell” reverse mortgages. Neitherdoes he disparage them, as he offers very balanced explanations. On my scale ofone to 10, this superb new book rates a solid 10.
“The Reverse Mortgage Advantage,” by WarrenBoroson (McGraw-Hill, New York), 2006, $21.95, 169 pages; Available in stock orby special order at local bookstores, public libraries, and
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Copyright 2006 Inman News