Are your loved ones considering a reverse mortgage? Here are some well regarded consumer-oriented resources to help with that.

When should a senior citizen seek a reverse mortgage loan?

The access to additional cash flow, or an adequate cash resource, can be a very good thing for seniors who have income challenges.  But seniors and their advisors should exercise caution. These transactions are not without challenges, according to a report by the Consumer Financial Protection Bureau.  This bureau analyzed this product in detail as part of a Dodd-Frank financial reform act requirement.

The number of American families who are accessing their home equity is on the rise.  Just in the last three years years, the number of borrowers who took all or almost all of the available equity cash in closings has gone up by thirty percent, and the overall level is now almost three out of four homeowners.

According to the Bureau: “Taking out a reverse mortgage early in retirement, or even before reaching retirement, increases risks to consumers.  By tapping their home equity early, these borrowers may find themselves without the financial resources to finance a future move—whether due to health or other reasons.”

The Bureau found that over nine percent (as of February, 2012) of the borrowers are at risk of foreclosure because they have not paid their property taxes and insurance.  Says Richard Cordray, the Director of the Consumer Financial Protection Bureau: “With one in ten reverse mortgages already in default, it is important that consumers understand that they are signing up for and that it is the right product for them.”

So what should be the next steps to decide if this product is right for a senior?

A good place to start is Financial Pathways of the Piedmont (formerly Consumer Credit Counseling Service of Forsyth County), located at 8064 North Point, Winston Salem (336-896-1191; www.FinancialPathwaysofthePiedmont.org), a well regarded United Way agency.

There is a great deal of very valuable information on line.  www.hud.gov has  a  good website with a series of frequently asked questions and answers on most of the issues.  The Federal Housing Administration has a number of useful consumer fact sheets which can be accessed at www.fha.gov, or by calling -1-800-CALL-FHA.

The National Council on Aging has a great deal of useful information available at their website at www.ncoa.org.  They publish a useful piece it calls “Use Your Home to Stay at Home. A Guide for Older Homeowners Who Need Help Now.” 

Other useful websites can assist a prospective senior in calculating how much money you may be able to borrow in a reverse mortgage transaction:  AARP calculator (http://rmc.ibisreverse.com//rmc_pages/rmc_aarp/aarp_index.aspx.  The National Reverse Mortgage Lenders Association has a calculator as well: (http://rmc.ibisreverse.com/default_nrmla.aspx).

A senior should meet with their financial advisor to determine what their cash flow requirements are, and whether or not there are other savings which seniors can secure to improve their cash flow.  Once you determine any cash flow needs you have, find out how much cash flow each month a reverse mortgage transaction is going to provide to you.   This information will help you make a much better decision.

What you should not do is mortgage your property for a large cash payout to loan or give to your children for their cash flow needs.

Finally, the North Carolina Commissioner of Banks has a website where one can find the names and contact persons for reverse mortgage lenders in North Carolina. (https://www.nccob.org/online/nmls/ReverseMortgageCertficates.aspx).

On balance, this kind of loan can be a very good thing for seniors, but they should consider it only after consulting their trusted advisors and gathering the necessary information.