For some, a reverse mortgage can help make ends meet

Times are tough. As the recession drags on, young and middle aged workers are adjusting not only their plans but their expectations about retirement and the quality of life they might expect.

But for older folks, nearing or at retirement, options are limited. For most, it's simply too late to learn a new trade or launch a business to develop a new income. Many are considering leveraging their most valuable asset -- their home -- to make ends meet. A reverse mortgage is one way to do just that.

Reverse mortgages were formally recognized in North Carolina law almost two decades ago. The act's introduction says the legislature's intent is to ensure that "elderly homeowners may use the equity in their homes to meet financial needs."

When a homeowner enters into a reverse mortgage contract, he receives a loan against his equity in his home. He does not have to repay a cent of the loan until he moves to another primary residence, sells the home or dies. In the event of the borrower's death, the borrower's spouse, if listed as a co-borrower, cannot be forced to vacate, sell or repay the loan, as long as he or she remains in the home.

According to a brochure from the North Carolina Housing Finance Agency, the homeowner can receive payment in monthly installments for an agreed-to time period, or for as long as he remains in the home. He can also opt for a line of credit he can draw from at any time.

Sounds pretty good, right? It's like selling your house and still getting to live in it. But as with many loans, the devil is in the details and you should carefully consider your options before deciding a reverse mortgage is right for you and your family.

According to a brochure from the North Carolina Housing Finance Agency, the loan accrues and compounds interest. That means interest is added to the balance, so as the balance grows, the interest it earns grows with it.

What's more, the homeowner remains responsible for all taxes, insurance and maintenance. But for as long as you meet all those conditions and continue to live in the home, you cannot be forced to repay.

When the borrower and any co-borrower dies, the loan balance and all accrued interest is due. That means your heir or heirs may choose either to sell the home, pay off the loan and keep and keep the balance (if any) or pay off the loan by their own means and keep the home..

But what if the balance is greater than the value of the home? Is the borrower leaving his heirs a debt bomb?

No. And here's the unique attraction of the reverse mortgage. The lender assumes all the risk in that case.

"If the loan exceeds the value of the property," the brochure states, "the borrower or their heirs will owe no more than the value of the property and no additional financial claims can be made against the heirs or the estate."

What's more, the lender can only enforce the agreement through sale of the home.

"The lender … shall not obtain a deficiency judgment against the borrower," according to the statute. That means the lender cannot obtain a court order forcing you to pay any or all of the loan amount. In many other loan agreements, a lender has many options such as garnishment of wages, or forced sale of personal property to satisfy the debt, but not in this case.

To be eligible for a reverse mortgage, borrowers must be at least 62 years old. Only the borrower's primary residence can be mortgaged; vacation homes or land does not qualify.

Naturally, lenders do not want to lose money on the deal. They calculate the value and potential appreciation of the home and balance that against the age and life expectancy of the borrower.

A younger borrower might be able to borrow no more than 30 percent of the home's current value. An older one could borrow as much as 80 percent of the home's value.

Along with payment of taxes and homeowner's insurance, the borrower is obligated to provide for maintenance for the home. In most cases, the standards of upkeep and maintenance are specified in the agreement. In the event the borrower fails to meet these obligations, the lender can call for early repayment of the loan.

By law, the homeowner needn't be worried about a prolonged hospital or rehab stay. The home may not be the borrower's principal residence for a period of up to 12 months for reason of physical or mental illness.

You can still take that trip to Europe, too; You can reside elsewhere for up to 180 days for reasons other than illness without violating the agreement.

State law requires that borrowers sit through a face to face meeting with a state certified counselor who will explain the terms of the loan in detail and answer questions about alternatives. The counseling sessions may be free of charge or may cost as much as $125, according to the Housing Finance Agency.

Reverse mortgage products can issue from the a North Carolina Housing Finance Agency or with any bank, savings institution or credit union in any state. The state Commissioner of Banks also licenses other institutions to originate reverse mortgages. Licensed lenders are required to prominently display their license to do so in North Carolina.

Lending institutions might offer very different terms, within parameters set by law, so it might be wise to shop around before committing to a lender.

The state's list of lenders offering reverse mortgages does not include any office in McDowell. However, many are more than willing to travel. Some banks with branches in Marion told The McDowell News they do not offer reverse mortgage products; others said they will gladly handle the entire transaction face to face in their local office.