Reverse mortgages may hit the spot for Hawaii seniors
Many of Hawaii's seniors are done paying off their home mortgages, but the home mortgage industry may not be done with them.
The unparalleled rise in real estate values and the low-interest rate climate of the Hawaii's housing market combined with the state's aging population has led to a proliferation of senior-only mortgage loan products. Seniors, who the University of Hawaii forecasts will make up a quarter of Hawaii's population by 2030, are fast becoming one of the hottest demographics for residential loan officers.
"Reverse mortgages are gaining in popularity with seniors because it allows them to borrow against the value of their home without having to move out or take on additional payments."
Owner of Reverse Mortgage Specialists of Hawaii.
A growing number of lender professionals, both in Hawaii and outside of the state, are trying to tap into the reverse mortgage market, which caters exclusively to the 62-and-older crowd, said Jean Seki, owner of Reverse Mortgage Specialists of Hawaii.
"Reverse mortgages are gaining in popularity with seniors because it allows them to borrow against the value of their home without having to move out or take on additional payments," Seki said.
In traditional mortgages, the borrower pays the lender. In a reverse mortgage, the process is flipped.
In a reverse mortgage, the lender actually drains equity from the home to provide the borrower with tax-free income. The money can be distributed as a lump sum, a line of credit or a monthly payment and does not have to be repaid until the loan comes due when the borrower sells the home, moves out of the home or dies.
Required mortgage insurance guarantees that the cost of the loan will never exceed the value of the home. And unlike home equity loans or second mortgages, reverse mortgages do not require seniors to undergo income, credit or asset qualification.
In Hawaii, there are many reasons that reverse mortgages have become a popular option for seniors, Seki said. Some of her clients have used them to pay off existing mortgages, fund health care, supplement income or travel. Others have taken out reverse mortgages so that they can provide their families with early inheritance or pay for private and secondary education, she said.
"My father, who is 87, has some desires to provide for his kids and for himself," said Lyman Young, who attended one of Seki's recent seminars. "He's looking at different options, but reverse mortgage seems to fit him well."
A reverse mortgage would allow Young's father to renovate his aging Makiki home without obligating him to make monthly payments on the repairs, Young said.
Seki has seen both her business and her competition grow exponentially in the four years that she has operated her company in Hawaii.
Susan Chikazawa, who works for First Horizon Home Loan, said she and many other Hawaii's loan officers are interested in learning more about reverse mortgages because the market holds lots of potential.
"We are seeing a lot more requests for this type of loan," Chikazawa said.
Hawaii seniors are being bombarded with reverse mortgage advertisements, but many of them still don't understand the process, said Colburn Kuwata, an independent insurance agent.
"With 7 to 8 million retirees coming of age, there are many different companies that want tap into this pool," Kuwata said. "The program has a lot of plusses, but I advise all of my clients to use caution."
While competition in the reverse mortgage market has led to greater variety in the types of loan packages being offered and more competitive closing fees, it's also created an environment that is ripe for consumer fraud. Most government-backed reverse mortgages cap fees and closing costs and don't build prepayment penalties or shared equity plans into loan packages, but there are fewer regulations in the proprietary lending markets.
State Insurance Commissioner Jeffrey P. Schmidt said that his office is currently investigating complaints from Hawaii seniors who have been sold reverse mortgages that are tied to annuities.
"We have seen an increase in complaints from our seniors where agents have taken advantage of them by tying the approval of a reverse mortgage to the sale of an annuity," Schmidt said.
Hawaii seniors can obtain free and independent reverse mortgage counseling through AARP at 1-866-295-7282 or HUD at (808)522-8175.