The Motley Fool On Reverse Mortgages and Declining Home Values

6/22/2008

posted by N. Sioris

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According to a June 18th article by John Rosevear of the Motley Fool, declining home values are limiting the amount of funds available to seniors through a reverse mortgage.

Reverse mortgages are one more area of the market that are taking a hit from the declining housing market. He says, "the conventional wisdom around reverse mortgages has long been that retirees should wait as long as possible before taking one. There are two reasons for this:

1. Reverse mortgages usually have an actuarial component, meaning that the lender looks at your likely remaining life expectancy when deciding how much to lend you. The older you are, the better your chances of getting more money. More money is good.

2. Historically, houses have appreciated over time, so that (according to the conventional wisdom) the longer you wait, the more equity you'll have. The more equity you have, the more money you can get.

You see the problem, don't you? (if not, read that second point again. It'll come to you."

Rosevear goes on to say that even though he does not have a crystal ball, he does not see the housing market recovering to early 2007 levels anytime soon. He speculates that it could get even worse before turning around.

He advises that when a long standing rule of thumb goes out the window due to market conditions, you should use common sense and think things through before making any long-term decisions. However, he does say that if you need the money from a reverse mortgage, waiting for the market to recover could mean a lot of uncertainty. He says, "you could wait six months or 10 years. But if you need the money immediately, and a reverse mortgage is the best fit for you, that's an excellent reason to take one now --- without losing sleep over the what-ifs."

Follow this link if you would like to read his complete article.


To find out if you have enough equity in your home to qualify, request your personalized benefit summary today! Don't let falling home values impact your ability to receive the maximum benefit from a reverse mortgage.

Reverse Mortgages Are Often Used To Retire Debt

6/19/2008

posted by N. Sioris

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According to an AARP survey, reverse mortgages are frequently used to payoff an existing mortgage and/or other non-mortgage debt. In recent years, there has been an increase in the number of older people that continue to carry mortgages and other consumer debt well into their retirement years.

Reverse mortgages are often used as a vehicle to supplement income indirectly. By using reverse mortgage proceeds to retire existing debt, you are freeing up income that would otherwise be used to make payments on your current mortgage or other consumer debt. Retiring current debt in this way has helped many older homeowners avoid foreclosure or bankruptcy.

47% of the respondents to the AARP survey reported having a mortgage balance on their homes. 28% of the respondents identified the need to pay off non-mortgage debt as a reason for looking into a reverse mortgage.

Three of the often mentioned reasons cited by the participants for looking into getting a reverse mortgage pertain to supplementing income. 47% said they need extra money for everyday expenses. 71% cited, improving the quality of life by being able to afford some extras, and 75% of the respondents mentioned having more money available for emergencies or other unexpected expenses.

Another part of the survey included responses from borrowers who had all ready obtained a reverse mortgage. When asked if their reverse mortgages had met their financial needs, 58% indicated that the loan had completely met their needs. 25% said the loan had mostly met their needs, and 12% said their needs had been partly met. Only 2% said that their needs were not met and another 2% said that it was too early to tell. For the majority of the people that said their needs were only partly met, the common reason given was that the loan did not provide enough money.

When asked about specific positive impacts as a result of getting a reverse mortgage, the most often cited results were:

1. Peace of mind
2. Helped them have a more comfortable lifestyle
3. Improved their quality of life
4. Helped them to remain at home

More AARP educational material about reverse mortgages can be found here.

HUD Says Fixed Rate Reverse Mortgages Not Always Best Choice

6/16/2008

posted by N. Sioris

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HUD has come out with new guidelines for HECM reverse mortgage counselors. HUD says that fixed rate reverse mortgages are not always the best option for seniors. To that end, HUD is now requiring that HECM counselors highlight the risks related to fixed rate HECM's during reverse mortgage counseling sessions.

HUD says that there are several risk factors that make a fixed rate HECM a poor choice for many seniors. HUD said that clients should be made aware of the following risks when opting for a fixed rate over an adjustable rate HECM.

1. Fixed Rate HECMs often have loan rates considerably higher than the current adjustable rate HECM loans. The senior's total interest cost over the life of the loan may be considerably higher for a fixed rate vs. an adjustable rate HECM.
2. Because fixed rate HECMs generally will have higher interest rates, the current amount of proceeds available from a fixed rate HECM may be lower than the proceeds available from an adjustable rate HECM.
   
3. Reverse Mortgages versus Traditional Mortgages: Borrowers should carefully evaluate the reasons for selecting a fixed rate HECM. With a traditional mortgage, borrowers tend to prefer fixed rates due to the certainty of the monthly mortgage payment to be made. In a reverse mortgage, borrowers remain in their homes while enjoying the use of their reverse mortgage loan proceeds and are not required to make monthly payments. Over the long run, managing interest rate risk may be much less important than maximizing upfront proceeds and obtaining a lower initial loan rate.
   
4. Borrowers desiring a fixed rate HECM will receive a closed-end loan. Borrowers with a closed-end loan will not be able to prepay the loan and draw any additional funds.
   

Before deciding whether any type of reverse mortgage is right for you, it is best to do your research in advance. Make sure you have a pretty good understanding about reverse mortgages before setting up an appointment for HUD counseling. That way, when you attend your session you will be prepared to clear up any questions or concerns that you may have, not only about fixed vs. adjustable, but anything else that you are uncertain about. For more information about HUD Counseling click here.

Reverse Mortgage Benefits Suffer As Home Equity Falls

6/09/2008

posted by N. Sioris

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Home equity, which is usually considered the single biggest asset for most people, has dropped to its' lowest level on record since the end of World War II. Homeowners' equity fell to 46.2 percent, which means the amount of debt in homes exceeds the built up equity.

As home values sink, so do the benefit amounts allowed for older homeowners that want to get a reverse mortgage. The amount of money allowed as a "benefit" or loan amount for a reverse mortgage is largely determined by the amount of equity in the home versus the value of the home. Some seniors that considered taking out a reverse mortgage a year or two ago, but decided to wait, are now sorry they didn't act sooner.

One homeowner that I spoke with recently, said that he didn't really know why he didn't take advantage of this loan program when he first considered it in late 2004. Now his home is worth 20% less and his allowable loan amount or benefit amount is considerably lower than it would have been in 2004. He said he really wishes he would have taken out a reverse mortgage back then, because now he is disappointed with the amount of monthly supplemental income he will be able to get from the reverse mortgage.

After a five year boom, the housing market fell into a deep slump two years ago. As the value of homes plummeted, foreclosures started to soar, and a credit crises unfolded. The fallout plunged Wall Street into turmoil, disrupting the normal functioning of markets worldwide. All of these factors have pushed the economy to the brink of recession.

Some economists predict that there is still a long road ahead before we see the housing market recover. Some even predict that things will get worse, before they get better.

The lesson learned here, is that if you are in need of tapping into your home equity through the use of a reverse mortgage, you should probably do it sooner rather than later.

For a quick check to see if you have enough equity in your home to qualify for a reverse mortgage, you can use this free reverse mortgage calculator. It will give you an estimate of whether you qualify and how much your benefit amount might be.

Other than adequate equity, the qualifications for a reverse mortgage are that all owners on title to the home be at least 62 years old, and the home must be your primary residence.