A calendar tacked to the wall next to the back door serves as a constant reminder of how Bob Perkins’ life has changed. The calendar hasn’t been touched since Dec. 1, 1989, when Bob’s wife, Sylvia, tore off the month of November.
It was that morning that Perkins had returned from the grocery store, toting supplies for baking Christmas goodies, to find Sylvia slumped in a kitchen chair.
“The amazing thing is she had turned the calendar that morning,” Perkins said.
He had never considered living life without his wife of 49 years.
“I always thought I’d be the one leaving her,” said Perkins, who had suffered a heart attack in 1977. “But you can’t plan those things.”
Losing his wife was the worst thing that has happened to Perkins, now 77. His personal loss was compounded by a financial one: Without Sylvia’s pensions and Social Security, his monthly fixed income was cut nearly in half, forcing him to consistently dip into his rapidly dwindling savings.
Fortunately, Perkins had one untapped source of income, often overlooked by seniors: his home.
“I’ve worked my butt off all my life,” he said. “I am entitled to the money out of my house.”
And thanks to a reverse mortgage, he was able to get to the money. Now Perkins’ biggest concern is his next oil-painting project, rather than whether he’ll be able to afford to live in his own home.
In the late 1980s, the Federal Housing Administration began to insure reverse mortgages. The idea of allowing seniors to borrow money against their home’s equity has blossomed.
For Perkins, whose savings account had fallen below $3,000, the $40,000 infusion from the reverse mortgage has allowed him to spend his days painting. He now lives without the stress he had come to experience every time he went grocery shopping.
“The way it changed my life, really, is that it took the worry out of it,” Perkins said. “It’s like going around with a pack on your back, then all at once you dump it, and you’re free to live.”
Available through the FHA and several private lenders, reverse mortgages work just as the name suggests.
Borrowers can receive monthly payments–either for a set amount of time or until they leave the home permanently–or can receive a lump sum. They can also set aside all or part of the money to be used only as needed.
Repayment only comes when the homeowner leaves the home permanently and it is sold to pay back the money given to the homeowner.
Reverse mortgages are only available to those over 62 who own their own home. Amounts depend on the borrower’s age, the home’s equity and current interest rates. The older the borrower (for couples, the age of the younger is used) and the higher the appraised value of the home, the more money is available.
The FHA has instituted a ceiling on the home’s value that can be used to determine the loan amount.
Interest rates are always variable, not fixed, and are higher than normal mortgage rates. Perkins, for example, is being charged 8.9 percent.
Many seniors use the money to enable them to stay in their home, rather than move to a retirement community. In many cases the home is sold when the owner dies and the reverse mortgage paid off.
Mortgage insurance prevents the possibility of an heir having to make up any difference in the loan amount and the sale amount. In other words, the only thing that heirs can lose is a chunk of their inheritance.
“In the past, the only way that people could capitalize on that single asset–their home–was to sell it,” said Craig Morris, a counselor with the Consumer Credit Counseling Service in Colorado Springs. “Now they don’t have to.”
Sound too good to be true?
Many seniors are skeptical, said Paul Cramer of the American Association of Retired Persons. Some are nervous about draining their equity after working so hard to pay for their home, he said. And they often feel guilty for spending at least part of the inheritance they hoped to leave to their heirs.
But it’s often the heirs who encourage the idea, Cramer said.
“I would think the children would say, `Don’t tap into the equity because that’s what I’ll gain,’ ” he said. “But they’re often more open to it than their parents.”
Eddy Jo Yost, regional manager of Unity Mortgage Corp. in Westminster, Colo., agreed. She added that reverse mortgages may always battle the stigma of regular mortgages.
“My feeling is this is like a savings account you’ve been putting money in for 30 years,” Yost said. “If it was a savings account, you’d think nothing of taking the money out.”
That is exactly how Perkins viewed the idea with a niece and nephew, who agreed to deal with the home after Perkins dies.
The FHA requires that all potential reverse-mortgage borrowers attend an information session at a certified counseling agency before a loan can be granted.
For information, send a self-addressed, stamped envelope to Reverse Mortgage Locator, National Center for Home Equity Conversion, 7373 147th St. West, Apple Valley, Minn. 55124.
