SOURCE: Cofed Bank

December 18, 2007 07:06 ET

Myths and Misconceptions Surrounding Reverse Mortgages Have Prevented Many Senior Adults From Taking an Educated Look at This Unique Financial Tool

MANHATTAN BEACH, CA--(Marketwire - December 18, 2007) - Reverse mortgages are a valuable financial tool for a portion of the senior adult community. Myths and misconceptions currently prevent a segment of seniors from understanding the reverse mortgage product and should be dispelled so that the senior adults whom this program was created for may be exposed to the facts, allowed to evaluate it on its own merits and take advantage of it if the investigation warrants so.

To meet with a growing demand from this population for this program, there have been new reverse mortgage programs created to address some needs not met by past reverse mortgages. There are now programs available for homes with higher values and lower closing costs. It is of the highest importance to seek out a reputable lender who can discuss all programs available and help find the one that best fulfills the specific needs of the client.

Reverse mortgages instill fear in some senior adults and their heirs. The myths and misconceptions exist for simple reasons such as when a senior adult looks to friends and family for answers, although their intentions are noble, they frequently convey inaccurate information. This often happens purely because of outdated information. This fear that exists prevents a portion of the senior adult population from thoroughly investigating the details associated to the different types of reverse mortgages available.

Bank of America reverse mortgage Sales Division Manager Sam Avaiusini states, "The top 2 myths and misconceptions we encounter are that the senior believes they will lose ownership of their home if they take out a reverse mortgage and that a reverse mortgage is only for a desperate or cash poor house rich senior homeowner." The fact is that the borrower(s) must remain on the deed with a reverse mortgage. Although a reverse mortgage can be used to remedy a desperate situation such as a foreclosure or excessive debt, it has other uses within a solid financial plan. Sam Avaiusini asserts, "...quite the contrary, we often see reverse mortgages used as a financial tool by secure senior homeowners." Another myth is that the lender takes ownership of the home when the loan is due and payable. A reverse mortgage becomes due and payable when the seniors cease to occupy the home as a primary residence, whether both pass away, sell the home or permanently move out. Any remaining equity in the home goes to their estate and they will never owe more than the home value even if the mortgage balance exceeds the value.

Many of the features of the reverse mortgage are misunderstood. For example, since there are no monthly payments to be made, there are no income or credit qualifying requirements. Reverse mortgages are regulated and insured by the government and require a third party counseling certificate prior to applying for the reverse mortgage. The proceeds of a reverse mortgage can be used for virtually any purpose, whether it's for paying off debts, paying real estate taxes, repairing or improving your home, buying a new car, eliminating an existing mortgage and payment, taking a vacation or supplementing retirement income to cover daily expenses.

Beginning January 2008, there will be 8,000 people per day turning 62 years old. There is a growing need for reverse mortgages and the more accurate and available the information for these programs is, the easier it will be to determine if it should be part of the senior homeowners financial plan.

ABOUT Cofed Bank -- Colorado Federal Savings Bank is a direct lender of home loans. It was founded in 1990 as a federally chartered financial institution and is authorized to provide home loans nationwide. Colorado Federal Savings Bank has been FDIC insured since 06/29/1990. Corporate Address: 8400 EAST PRENTICE AVENUE, SUITE 545 GREENWOOD VILLAGE, CO 80111

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