The Reverse Mortgage

Seniors Reap the Benefits of this Financial U-turn

The Catholic Review - January 08, 2004
By: Jennifer Williams
Staff correspondent

The children are grown, you have retired and suddenly you have all the time in the world. It would be the perfect opportunity to take that long-awaited trip to Italy. There’s just one problem – where to get the money.

For individuals age 62 and older who own their own home (it doesn’t matter whether there is a mortgage on the home or not), the answer can be as simple as a reverse mortgage.

“Seniors can find themselves sometimes in a situation where they’re not maximizing the use of those dollars in the equity of their house,” explained Nikolay Ratajczak, a reverse mortgage specialist and licensed mortgage lender who is a parishioner of St. John the Evangelist, Hydes. “The purpose of a reverse mortgage is to allow seniors to have access to the wealth they have built in their home.”

According to the AARP Web site, a senior can choose to receive the money as a lump sum, in monthly increments, as a credit line, or even using a combination of these methods.

Unlike a conventional loan, the reverse mortgage allows seniors to borrow against their home without making monthly payments. Instead, the amount of the loan, plus interest, becomes due when the last living borrower sells his or her home, moves out or dies.

According to Mr. Ratajczak, the amount of money available to be borrowed is calculated based on the borrower’s age, the value of the home and current interest rates. Mr. Ratajczak, president of Advent Financial Group, said that because the reverse mortgage loan is non-recourse, the senior or his/her heirs will never owe more than the value of the house at the time of repayment.

What senior citizens choose to do with the money is up to them.

“Financial planners, families and CPAs (certified public accountants) can help seniors determine the most advantageous use of those funds,” said Mr. Ratajczak, noting that the reverse mortgage also offers tax benefits. “The only limitation is a client’s imagination.”

One of the first requirements is that any existing mortgages must be paid off.

After that, the money can be used for home improvements, trips, as gifts to relatives or more.

“It’s an increase in an individual’s cash flow,” Mr. Ratajczak said.

One case in which Mr. Ratajczak wouldn’t recommend a reverse mortgage is if the individual doesn’t plan on staying at least a couple of years at the property.

There are two types of loans – private sector reverse mortgages and those offered by state and local governments.

According to the AARP, “the most well-known and widely available reverse mortgage is the federally-insured Home Equity Conversion Mortgage (HECM). This loan is backed by the U. S. Department of Housing and Urban Development (HUD) and can be used for any purpose.”fa