One More Reason For Reverse Mortgage Demand

7/26/2007

posted by N. Sioris

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As most people know, reverse mortgages have been surging in popularity over the last couple of years. As the baby boomers reach retirement age during the next couple of years, reverse mortgage demand is expected to explode.

One of the explanations for this phenomenon is the lack of defined benefit retirement plans or pensions. Consequently, home equity will have to play a much larger role in the next retirement generation's financial plan than it did for previous generations. Luckily for many, home appreciation has soared in recent years and will provide the ability to tap into home equity through the use of a reverse mortgage.

In 1975, fifty percent of employees had a defined-benefit pension plan and one out of six employees had a defined-contribution plan. Since that time the statistics have almost been completely reversed. By 2005 only one out of every six employees had a defined-benefit pension plan and fifty percent of employees had a defined-contribution plan. Corporate America has clearly placed the responsibility of retirement savings and planning squarely on the individual.

Currently only 22% of retirees have an income plan that provides a road map for how they will draw down their assets in order to live a comfortable life in retirement and not outlive their money.

It seems obvious that more and more people will be forced to tap into their home equity as a means to provide retirement income. One of the best ways to do that is by using a reverse mortgage, rather than selling the home or taking out an equity loan that has to be repaid on a monthly basis. Additionally, a traditional equity loan requires income qualifications, which most retirees will not be able to meet.

Pending Legislation Could Enhance HECM Reverse Mortgages

7/19/2007

posted by N. Sioris

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The most widely used reverse mortgage, the Home Equity Conversion Mortgage - HECM- may soon have enhancements made to it that will allow even more senior homeowners to benefit from FHA-backed HECM reverse mortgages.

The Expanding American Homeownership Act of 2007 is currently pending before Congress. This legislation, if passed, will allow more seniors to access a greater portion of their home equity through the use of HECM reverse mortgages. Enacting this legislation will make reverse mortgages available to an estimated additional two million seniors because it would remove the statutory limitation on the number of HECM loans that could be guaranteed by FHA and it would set a single nationwide loan limit amount. Currently, the maximum loan amount varies by geographical area of the country and is capped at a maximum loan amount of $362,790. In high cost areas, such as the Northeast and West, home values far exceed the current maximum loan amount, thereby leaving many seniors in those locations without access to a large portion of their home equity. Increasing the loan limit and standardizing the loan amount maximum on a national basis rather than regionally, will allow many more seniors access to the advantages of HECM reverse mortgages.

The volume of HECM reverse mortgages insured by FHA has increased ten-fold over the past six years. This legislation will undoubtedly increase that number even more and allow more senior homeowners access to a greater portion of their built-up home equity without having to move, sell their homes, or take on monthly mortgage debt.

Is It Wise To Use Reverse Mortgage Money For Investing?

7/12/2007

posted by N. Sioris

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A commonly cited feature of reverse mortgages is that the money you receive from your reverse mortgage can be used for any purpose you choose. After all, it is your money! However, does that necessarily mean that all of the uses people come up with are good choices?

You may be considering taking your reverse mortgage loan proceeds in a lump sum so that you can invest the money in something that you think might grow quickly or offer a high rate of return or a higher amount of income than the reverse mortgage tenure option provides. If you are fairly sophisticated when it comes to evaluating and understanding investment opportunities or if you could absorb the loss of such an investment, then using your reverse mortgage money in this way might be an option for you. However, if you have little or no investment knowledge or experience you may well heed the advice of AARP on this subject. What AARP says is: "Investing the money you get from a reverse mortgage is a highly questionable practice. It is extremely unlikely that you could safely earn more from an investment than the reverse mortgage loan would cost you."

You have heard the expression "risk reward ratio". Usually the higher the reward or return, the higher the risk of losing all or part of your principal investment. If your home is your biggest asset you should be extremely careful if you liquidate that asset in a lump sum and invest it in a vehicle that could lose all or part of its' value. As an older person in retirement you would probably have no way of recovering from such a loss during your lifetime.

So the answer to the question of whether it's wise to use your reverse mortgage money for investing is: It just depends. For some people it might be OK. For others it could be a disaster. If you are considering such an option, make sure you seek the advice of a trusted or professional adviser - someone that has nothing to gain in the way of sales commission or fees for their advice to you.