From the Herald News:
A quick fix?
A quick fix?
About a year ago, Betty Holley, 76, looked at her bank account and got nervous.
The tiny pension she earned as an Essex County nurse was gone. Her husband's IRA from driving a bus had been used for tax bills. The roof on their Bloomingdale house was crumbling and the kitchen floor was becoming a trip hazard. And their collective list of health ailments was growing.
"We were starting to feel panicky," Holley said. "It was clear we needed to do something."
The Holleys joined the growing ranks of seniors who took out a reverse mortgage, allowing them to obtain cash by borrowing against the equity in their home. Instead of getting a monthly mortgage bill, reverse mortgage recipients receive a check. In recent years, such loans have surged in popularity with older homeowners needing to make emergency home repairs, get out of debt, pay hospital bills or cope with a sudden loss of income.
But with the immediate funds come additional debt – not for the mortgage holders, but their heirs. Many seniors strapped for cash care little about what will happen down the road, while their children just want their parents to live comfortably.
Reverse mortgages do not have to be repaid until the owner dies or moves. Funds can be received in one lump sum, monthly payments, through a line of credit, or in some combination of the three.
The mortgages are issued by banks or other lending institutions, which do not gain control over the home's title. After a recipient dies, heirs will inherit the property along with the incurred debt. Once a reverse mortgage is in place, homeowners can't take out other types of home loans.
Reverse mortgages have been around sine the late 1980s, but their popularity has surged recently. Federally backed loans grew from 7,781 to 48,088 between 2001 and 2005. The number in New Jersey tripled between 2002 and 2005, totaling about 1,600 last year.
Lesley Weiner, a Totowa-based financial planner, thinks reverse mortgages should be entered with caution. "The heirs have to understand them," Weiner said. "The house is really on the line."