Age of these borrowers in reverse

EQUITABLE SOLUTION: Bristol resident Nancy E. Dobie took out her first reverse mortgage in 2005. She says it wasn't to pay off debt. Rather, it was to stay in her home with cash to spare. / PBN PHOTO/RUPERT WHITELEY
EQUITABLE SOLUTION: Bristol resident Nancy E. Dobie took out her first reverse mortgage in 2005. She says it wasn't to pay off debt. Rather, it was to stay in her home with cash to spare. / PBN PHOTO/RUPERT WHITELEY

It used to be that taking out a reverse mortgage was a means for a person past retirement age to stay home, collect enough to get by and maybe keep their house – the iconic symbol of the American dream – in the family.
Increasingly, however, reverse mortgages are becoming an acceptable loan option for an ever-younger group of applicants.
According to a study released in March by the MetLife Mature Market Institute, the age of those seeking home-equity conversion mortgages, also called reverse mortgages, has dropped since the 2008 collapse of the housing market. It also indicates these loans have evolved into a way for people to cope with paying off sometimes overwhelming debt.
“The age of borrowers is going down,” said Sandra Timmermann, executive director of the Metlife institute. The institute partners with a variety of groups, including the National Alliance for Caregiving and the National Adult Day Services Association to conduct and share research on issues such as aging and longevity.
“Our study looked at people who underwent [education] on the reverse-mortgage process. We interviewed [more than] 21,000 potential applicants but not all of them actually took out a reverse mortgage,” she said. During the 1990s, the typical reverse-mortgage borrower was between the ages of 75.2 and 76.7. In 2010, the average age of these borrowers fell to 73. “We thought they were relatively young, almost half (46 percent) of those people considering it were under the age of 70,” she said.
Twenty percent of the applicants were between the ages of 62 to 64 and represent the leading edge of the baby boomer generation now becoming eligible for a reverse mortgage. The oldest members of this group began turning 62 in 2008.
Nancy Dobie of Bristol was slightly ahead of the curve, getting a reverse mortgage at the age of 62 in 2005, knowing her mortgage was paid in full. For her, it wasn’t a case of eliminating debt; it was a means to remain at home with cash to spare. She represents the growing trend of younger people applying for a reverse mortgage.
“I designed and built my own house in 1985.” she said. “I loved it and knew I wanted to stay there forever. The reverse mortgage has given me financial peace of mind. It has enabled me to keep living here, and I use the extra money to help pay for living expenses. I can enjoy living here without the fear of selling my house, especially in this economy.” Dobie has even taken out a second reverse mortgage for extra money. “It’s not for everyone, it depends on your individual circumstance,” she said. “But I’m staying in my house, and that’s that.”
Timmermann said that generally, however, younger applicants have less equity in their house – a fact that did not deter them from showing interest. Their plan typically was to use the reverse mortgage to pay off existing debt. She concludes that younger people are discovering the possibilities of the reverse mortgage and that an increasing number consider it a part of their retirement portfolio.
“That piece is newer, and I see that trend as becoming more important,” she said. “If you look at your assets and income over a lifetime and you think you’ll be living to age 100, your home is a potential source of income, and you can use it for other things, to enhance your quality of life. In the past, people were using it as a last resort,” she said.
“The trend is changing,” agreed Brenda J. Archambault, vice president, mortgage lending and reverse-mortgage specialist for The Washington Trust Co. “Most of the people asking about reverse mortgages are younger borrowers and most of them are using it to pay off existing mortgages.” In the past, Archambault said, reverse mortgages were used to supplement income. “Now, instead of actually getting a check, they’re using the fixed rate to pay off an existing mortgage and eliminate their monthly mortgage payment.”
“Because the economy is difficult and people are losing their jobs, some are finding it harder to make their mortgage payments,” she continued.
“The surge we are seeing is from people who are getting ready to retire and from people that have lost their jobs,” she added. “We didn’t see [the addition of those that have lost their jobs] five years ago.”
Archambault also said that products affiliated with a reverse mortgage have evolved, becoming more mainstream and attractive. “Now we have a fixed interest rate which is at 5 percent. It’s slightly higher than a traditional rate but it’s a lot better than the rate five or six years ago,” she said. In addition, having that fixed rate means closing costs are less than for reverse mortgages of the past. “In a way it’s like a refinancing,” she said. “If you were to buy a home or refinance, you have a mortgage that is secured on the property. Your mortgage is your promise to pay. A regular loan, you promise to pay in installments. A reverse mortgage has the same security instruments, it’s just that your promise to pay is in one lump sum (plus interest and fees).
According to Washington Trust, attitudes toward reverse mortgages have changed enough to merit a series of free seminars this month at various locations throughout the state, beginning on May 15 at noon at B. Pinelli’s, 736 North Broadway, East Providence. Others are planned on May 22 and May 24 in Westerly and Richmond, respectively.
According to Timmermann, attitudes about reverse mortgages are changing because the recession has affected traditional retirement financial plans. Two-thirds of people ages 50 to 64 lost money in mutual funds, individual stocks or 401(k)-type investment accounts in 2008. About 29 percent saw their retirement funds decline between 20 to 40 percent, and nearly one in seven lost more than 40 percent. About 75 percent of people in this age group surveyed believe the recession has made it harder for them to meet their financial needs in retirement, thus carrying a mortgage and other debt becomes more difficult.
H. Tina Riccio, reverse-mortgage specialist at Coastway Community Bank, has seen the number of applications increase in the Providence metropolitan area. She agrees that the increase is a direct reflection of the economic recession. “More and more people are using the reverse mortgage … and a lot of them are younger than in years past,” she said.
Counseling for all reverse mortgages is required by the U.S. Department of Housing and Urban Development. It is mandatory because the process isn’t without risk.
“If you are pulling the equity out of your house at age 62 and live to be 100, you’ve lost that asset,” Timmermann said. •

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