"Consumers need to get the full details of the offer from the lender, and [they] need to analyze them and compare them," he said. Counseling, which is required to qualify for the FHA HECM program, also can help borrowers sort through their options.
Falling House Values
With declining home values, people might be less inclined to take out a reverse mortgage these days because the equity in their home has taken a hit, said Stucki. Typically, people like to tap their home's equity when they have a lot of it.
It's important to note that those who took out a reverse mortgage when home prices were at a peak won't see changes to that loan--even if their home value has fallen substantially.
"We've seen instances ... where people already have higher balances than the value of their house," said Jeff Lewis, chairman of Atlanta-based Generation Mortgage Co.
That's not a problem for the borrower. When the loan comes due--often when the homeowner either sells the home or dies--the amount owed will never exceed the value of the home due to the FHA insurance.
But falling house values have prompted some recent changes to the program. Last year, HUD put in place a 10% reduction in borrowing limits for FHA-insured reverse mortgages, reducing the amount of equity a homeowner can tap, Stucki said. This year may bring more changes, including another possible reduction in borrowing limits and an increase in mortgage-insurance premiums, Bell said.
Reasons To Reverse
Historically, people have sought reverse mortgages as a way to make ends meet, as they balance the costs of health care, housing and other basic needs in their retirement years.
But in today's housing market, it has become more common to see people using them to eliminate monthly mortgage payments, Bell said.