Reverse Mortgages No Longer Seen As Last Resort

You know that bumper sticker on the RV: we're spending our kids' inheritance? Well now it may as well be on a sign in the front yard, too.

As retirement funds take their lumps with all the stock market turmoil, a growing number of people are taking out "reverse mortgages." That's where retirement-age folks can draw on the value of their house tax-free, but still keep living in it.

Demand is surging just as new rules went into effect this Nov. 1 to make reverse mortgages cheaper and more accessible. WBUR's Curt Nickisch reports.

Larry and Mary Holland are retired, and they're happy. The 78-year-olds have enough cash flow that they got new windows for their modest home in Norwood. Sitting on their living room couch with her feet barely touching the brown shag carpet, Mary Holland says she and Larry even have enough money to splurge now and then by going to Foxwoods Casino in Connecticut:

HOLLAND: We enjoy going down there once a month or every other month or something. And we don't lose a lot because we don't like to lose. We don't win a lot laughs but we have a good time. We can afford to do that once, you know.

The Hollands can afford to do that, because they took out a reverse mortgage on about a quarter of the value of their home. That means the house is partly owned by the bank now. But they receive eight hundred dollars a month tax-free they otherwise would not have.

Lately, more elderly Americans are joining the Hollands, and seeing reverse mortgages as a useful financial tool rather than a last resort.

BRODRICK: Public perception is changing as more of these are being done.

That's John Brodrick. He sells reverse mortgages through his Westwood company: Your Home for Life. He says as the stock market tanks and takes 401(k)s down with it, his business has been climbing.

BRODRICK: So many folks are seeing their retirement accounts disappear. And yet they still have the asset, the home, and this is really the only vehicle where you can get at the equity where you don't have to make a payment or sell your house.

Now it's easier to get reverse mortgages. The limit for federally-insured ones has been raised to more than four hundred thousand dollars. That makes them more attractive in this expensive real estate market.

Plus, anyone who sells a reverse mortgage is banned from hawking other financial products to the same customer, correcting an abuse of the past. Finally, the origination fees are capped. Though financial planner John LeBlanc of Back Bay Financial says those fees can still be high.

LEBLANC: Frequently you're talking about eleven or twelve percent of the amount that you can borrow. It's still expensive. It's still buyer beware.

And there's a psychological barrier for many people. A home they may have owned free and clear for decades is going back to the bank.

MUNNELL: This gut-wrenching thing that you won't have a house to leave to your daughter or your niece or your son.

Alicia Munnell heads the Center for Retirement Research at Boston College. She says it's unfortunate, but the way things are going, more and more retirees will have use reverse mortgages to tap their home equity.

MUNNELL: It's repugnant for people to do that, but I think it's going to be a necessity. And so we all have an interest in making that market work as well as it possibly can.

Munnell praises the new regulations to make reverse mortgages more consumer friendly and less costly. But even before today's new rules, it was worth it for Larry and Mary Holland in Norwood.

HOLLAND: Just, I don't have any money worries, you know. Our children have their have their own places. So we don't have to worry about saving it for them. So we just have a very happy life.

Boston College's Munnell hopes that other people's lives will improve, too, as the reverse mortgage market grows and increased competition brings consumer costs down more.