Seniors turn to reverse mortgages
POSTED: Saturday, December 13, 2008
Hard times, job loss and family obligations forced Alvin K. Kalahiki Sr. and his wife, Bernice, three times to mortgage the home that they built in Waianae.
By the numbers
The payout for a reverse mortgage is based on age and allowable home value. This graphic shows the monthly payout a senior homeowner with a loan limit of a $544,185 reverse mortgage could expect to receive based on his or her age.
Source: Reverse Mortgage Specialists of Hawaii
With home values spiraling downward and the economy crashing, the couple feared that lost income after retirement could result in foreclosure, Bernice Kalahiki said. However, a reverse mortgage gave them the funds to take a dream trip to Australia, remodel their home and have the confidence to retire, she said.
In traditional mortgages the borrower pays the lender. In a reverse mortgage, which is available to those 62 years and older, the process is flipped. In a reverse mortgage the lender 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 or dies.
"I didn't think that I would be able to deal with the loss of income when my husband retired, but a reverse mortgage gave us peace of mind," Bernice Kalahiki said. "In Waianae we have a lot of homeless people living on the beach, and we didn't want to join them."
As Hawaii's economy grows more strained, reverse mortgages are becoming more popular with senior homeowners, said Jean Seki, owner of Honolulu-based Reverse Mortgage Specialists of Hawaii. Seki has seen homeowners use reverse mortgages to pay off high mortgage balances and help relatives pay for education, homes or renovations. In some cases, seniors have taken cash out of a home to buy a condo so that when one spouse dies, the other can downsize free and clear or purchase huge insurance policies for their families, Seki said.
However, reduced loan limits combined with dropping home values and a climate where many homeowners borrowed too heavily into their equity have reduced the number of viable transactions, she said.
"I've seen a pickup in terms of inquiries," Seki said. "The problem that we find is that many people who need relief are overextended. Many have refinanced their existing loans or seen their values drop, and often what they owe is more than what the reverse mortgage would allow."
While call volume at Seki's business has picked up 20 to 25 percent from a year ago, the company is able to help only an estimated four out of 10 callers, she said. The drop in business has forced Seki to lay off staff members and expand her operations to include conventional FHA loans, Seki said.
In addition, new loan limits of $544,185, which went into effect this fall, eliminated jumbo reverse mortgages, she said. Seki and others in her industry are hopeful that the limit will rise to $625,500 in January, but there are no guarantees, she said.