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DWELLER BEWARE

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Social Links for Gregory Bresiger
Published June 17, 2007, 9:00 a.m. ET

Retirees needing cash and thinking about getting a reverse mortgage to pump up their monthly cash flow should tread carefully – the fees attached to the loans can get pricey and the paperwork can be confusing, advisers say.

“These loans can sometimes work and sometimes they don’t work,” says Ron Palastro, a Brooklyn certified financial planner who has helped clients in this area.

Palastro’s clients are not alone – the federal government, which backs a good portion of the reverse mortgages taken out, said business in the sector grew 77 percent in the 12 months ended Sept. 30 compared to the previous 12 months.

New York City is the No. 5 market for reverse mortgages.

John Rother, policy director for AARP, said reverse mortgages are complicated financial deals and cautioned folks to consult with an adviser before signing any papers.

“We aren’t seeing abuses with reverse mortgages, but we are seeing some confusion,” Rother said, noting some individuals have paid up to $25,000 in various fees for reverse mortgages.

That, according to Stacy Francis, a Manhattan-based planner, is usually too much for the loans. Advisers say the government-guaranteed reverse mortgages tend to have lower fees.

So why do people sometimes opt for a privately financed reverse mortgage?

“The government loans often have caps so if you want a big loan because you have a lot of equity in your house, you may have to do it privately,” according to Palastro. In addition, Fannie Mae reverse mortgages have qualification criteria that may shut out some people, advisers said.

A reverse mortgage is a special kind of home loan. It allows people age 62 or older to turn the equity in their homes into cash so they enjoy a higher standard of living. They can also stay in their homes for the rest of their lives. The lender provides that guarantee, but the borrower could still lose the home if he or she fails to pay the property taxes.

Reverse-mortgage payments can made to the homeowner through a lump sum, available credit line or monthly cash payment.