Q: My mother died recently and left a reverse mortgage on her home. We’d like to keep the house. What are our options?— Sandra Metz, Denver
A: Reverse mortgages have gotten a really nasty rap because of the unscrupulous tactics some in the mortgage industry have used with them.
It’s easy to see why. The only ones eligible for a reverse mortgage are the elderly, 62 and older. For them, a lifetime of hard work may not have resulted in a giant bank account, but it did leave them with one nice piece of equity: their house.
Reverse mortgages are designed to loan you money on your home — typically monthly payments to meet living expenses or a lump sum — that you don’t have to pay back for as long as you live there.
Interest rates vary, and the obligation is the amount paid out by the lender.
Once you die or sell the house, the note may become due, though there’s usually a lag of a few months or a year. Then, either pay the debt or the note holder forecloses.
Key here is knowing the value of the house, and that’s gotten via an appraisal, the very instruments that caused much of the mortgage crisis we’re in now.
Still, if the appraisal is higher than what you owe, you should be able to get a new mortgage for the lien amount.
It’s a stickier situation if the appraisal is lower than what’s owed. Chances are you’ll not get a mortgage for the amount owed and will have to pay the difference, whether you want to keep the house or sell it.
In that case, you can consider several instruments — second mortgages on other property or even personal loans — to cover the indebtedness.
David Migoya wants to get the answers to your consumer questions. E-mail consumertips@ denverpost.com or write to Consumer Shopping Bag, The Denver Post, 101 W. Colfax Ave., Suite 600, Denver, CO 80202.
