Reverse Mortgage Benefits Suffer As Home Equity Falls

6/09/2008

posted by N. Sioris

Stumble It!

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.