HECM reverse mortgages are reputed to carry high upfront fees, which raises two questions addressed here. First, are seniors getting real value in exchange for the high fees? The answer in most cases is "no". Second, can a senior who knows the ropes avoid paying excessive fees? The answer in every case is "yes."
Price Differences Do Not Necessarily Reflect Over-Pricing
In the early part of the previous century, when Coney Island was a playground for both the rich and famous and those who were neither, there were two restaurants that specialized in hot dogs. One was Nathans which charged 5 cents, the other was Feldmans which charged 10 cents. My father, who is the source of this information on Coney Island history, dealt only with Nathans. But Feldman had better furnishings and the clientele were better dressed, which induced many to pay the higher price for the hot dog.
The Feldman hot dog was not over-priced, at least for many years, because the information consumers needed to make a decision between a 5 cent dog delivered in cheap surroundings and a 10 cent dog delivered in elegant surroundings was available at no cost at the moment it was needed. The market worked. Ultimately, consumers reacted against paying for the elegance of a hot dog vendor, and Feldmans failed, while Nathans survived to this day.
Price Differences on HECM Reverse Mortgages
The price differences that prevail on HECM reverse mortgages are enormous by any standard. For example, consider the borrower of 70 with a home worth $600,000 and an existing mortgage balance of $200,000 who is looking to pay off that balance in order to rid himself of the required monthly payment. If on August 14 he responded to an advertisement on TV or on the internet, in all likelihood he would be offered a fixed-rate mortgage at 5.06% with a $6,000 origination fee. This is the market price on that day estimated by NRMLA, the trade association of reverse mortgage lenders, as quoted on www.nrmlaonline.org. If instead he shopped for the same HECM among a group of competitive lenders, he would have found the same loan available at 3.99% with a zero origination fee.
HECM Price Differences Reflect Over-Pricing
Unlike the hot dog case, there is no way that the price differences cited above could reflect a difference in the value that some borrowers attach to the different HECM delivery systems. While the hot dog buyer had all the information needed to decide between the 5 cent and 10 cent dogs, the HECM borrower does not for a variety of reasons.
One-Time Versus Recurring Transactions: In contrast to the purchase of a hot dog, a HECM transaction is a big one and the borrower has no opportunity to learn from repeated exposures. Very few HECMs are refinanced.
Multiple Price Dimensions: Where a hot dog has a single price, HECMs have two prices, the interest rate and origination fee, which can complicate the decision process.
The Focus of Consumers on Draw Amounts Allows Lenders to Obfuscate the Price: The major focus of most consumers is the amount they can draw on a HECM. Much of the advertising has this focus, especially the on-line advertising which invites the consumer to fill out a form on the basis of which the consumer is told how much they can draw. If the consumer does not ask for the price used in the calculation of the draw amount, she may not see it until receiving the various documents that require her signature.
read more at: http://www.huffingtonpost.com/jack-m-guttentag/are-hecm-reverse-mortgage_b_8061770.html
Showing posts with label reverse mortgages. Show all posts
Showing posts with label reverse mortgages. Show all posts
Monday, August 31, 2015
Friday, July 31, 2015
Reverse mortgages — look before you leap
SOUTHWEST LOUISIANA (KPLC) -
There's been news coverage of a case out of Philadelphia where several widows faced foreclosure on their homes —because their husbands had taken out reverse mortgages.
What should you watch out for if you're thinking about taking out such a loan.
The TV ads say "You'll learn the benefits of a government insured reverse mortgage." What are they?
Reverse mortgages are a way to turn your home's equity into cash. And most of the ads offering such loans say you will never have to leave your home before you die.
But Carmen Million with the Better Business Bureau said it's important to fully understand what you're getting yourself into.
"A reverse mortgage is not for everybody so you need to determine what a reverse mortgage is and if it's something that would benefit you," she said.
Before you sign up for a reverse mortgage, it's important to consider a number of things, such as how it will affect your spouse and your heirs if you hope to leave anything to them.
"Maybe not you, during your lifetime, but your spouses or your heirs may not have any rights to that home once the person who signs the contract is deceased. So you need to make sure you understand what your rights are in relation to your spouse and your heirs," Million said.
Contracts can be hard to understand, so you may want to have your attorney review anything you plan to sign.
"You would need to read your contract and understand exactly how it works, how it's going to benefit you versus, you want to take into consideration the benefits versus any negatives," she said.
Under no circumstances with any loan should you be asked to pay some money up front.
And it's important for borrowers to remember even with a reverse mortgage, they still must pay taxes, insurance and maintenance on their homes.
HUD has a lot of information on reverse mortgages and what to watch out for. Click HERE for information.
see more: http://www.kplctv.com/story/29676410/reverse-mortgages-look-before-you-leap
There's been news coverage of a case out of Philadelphia where several widows faced foreclosure on their homes —because their husbands had taken out reverse mortgages.
What should you watch out for if you're thinking about taking out such a loan.
The TV ads say "You'll learn the benefits of a government insured reverse mortgage." What are they?
Reverse mortgages are a way to turn your home's equity into cash. And most of the ads offering such loans say you will never have to leave your home before you die.
But Carmen Million with the Better Business Bureau said it's important to fully understand what you're getting yourself into.
"A reverse mortgage is not for everybody so you need to determine what a reverse mortgage is and if it's something that would benefit you," she said.
Before you sign up for a reverse mortgage, it's important to consider a number of things, such as how it will affect your spouse and your heirs if you hope to leave anything to them.
"Maybe not you, during your lifetime, but your spouses or your heirs may not have any rights to that home once the person who signs the contract is deceased. So you need to make sure you understand what your rights are in relation to your spouse and your heirs," Million said.
Contracts can be hard to understand, so you may want to have your attorney review anything you plan to sign.
"You would need to read your contract and understand exactly how it works, how it's going to benefit you versus, you want to take into consideration the benefits versus any negatives," she said.
Under no circumstances with any loan should you be asked to pay some money up front.
And it's important for borrowers to remember even with a reverse mortgage, they still must pay taxes, insurance and maintenance on their homes.
HUD has a lot of information on reverse mortgages and what to watch out for. Click HERE for information.
see more: http://www.kplctv.com/story/29676410/reverse-mortgages-look-before-you-leap
Wednesday, July 1, 2015
Are reverse mortgages a scam?
Home A_VALLESEquity Conversion Mortgages (HECM), more commonly known as reverse mortgages, were authorized by President Ronald Reagan in 1987 and are federally insured by the Department of Housing and Urban Development (HUD). Hundreds of thousands of people aged 62 or older have benefited from this program, which has provided them the opportunity to remain financially independent.
Yet, despite a 27-year history of helping senior homeowners, there still remains confusion over whether reverse mortgages actually work. A client recently shared that her daughter had heard reverse mortgages are a “scam.” She wasn’t sure why this was so, but had “heard it somewhere.” Fortunately, once the daughter learned about the merits of a reverse mortgage, she was in agreement with her mother that it was the best option.
This is a recurring pattern of seniors, adult children, attorneys, estate planners, and real estate agents, to name just a few, who have a poor opinion about reverse mortgages, but don’t really know why.
To help dispel this unwarranted negative perception, here’s a short summary of the top seven myths about reverse mortgages:
The lender will own your home – FALSE!
You continue to retain ownership of your home. Reverse mortgage borrowers may remain in the home for as long as they wish subject to paying the property charges, which include real estate taxes and insurance. When the home is sold any profit is yours.
Your heirs must pay the loan back – FALSE!
A reverse mortgage is a non-recourse loan and you do not sign personally. The lender is repaid from the sale of the property. Your heirs are not responsible for paying back the loan.
You need income and good credit to qualify – IT DEPENDS!
As of April 27, 2015, all borrowers must provide their income information and have their credit profile reviewed. For those who do not meet the guidelines the lender will “set aside” future amounts to pay the property charges, subject to the available reverse mortgage loan amount.
You must make monthly payments – FALSE!
There are never any mandatory monthly principal or interest payments. However, you may make a payment at any time with no prepayment penalty.
Your home must be debt free to qualify – FALSE!
Yet, despite a 27-year history of helping senior homeowners, there still remains confusion over whether reverse mortgages actually work. A client recently shared that her daughter had heard reverse mortgages are a “scam.” She wasn’t sure why this was so, but had “heard it somewhere.” Fortunately, once the daughter learned about the merits of a reverse mortgage, she was in agreement with her mother that it was the best option.
This is a recurring pattern of seniors, adult children, attorneys, estate planners, and real estate agents, to name just a few, who have a poor opinion about reverse mortgages, but don’t really know why.
To help dispel this unwarranted negative perception, here’s a short summary of the top seven myths about reverse mortgages:
The lender will own your home – FALSE!
You continue to retain ownership of your home. Reverse mortgage borrowers may remain in the home for as long as they wish subject to paying the property charges, which include real estate taxes and insurance. When the home is sold any profit is yours.
Your heirs must pay the loan back – FALSE!
A reverse mortgage is a non-recourse loan and you do not sign personally. The lender is repaid from the sale of the property. Your heirs are not responsible for paying back the loan.
You need income and good credit to qualify – IT DEPENDS!
As of April 27, 2015, all borrowers must provide their income information and have their credit profile reviewed. For those who do not meet the guidelines the lender will “set aside” future amounts to pay the property charges, subject to the available reverse mortgage loan amount.
You must make monthly payments – FALSE!
There are never any mandatory monthly principal or interest payments. However, you may make a payment at any time with no prepayment penalty.
Your home must be debt free to qualify – FALSE!
see more: http://www.fiftyplusadvocate.com/archives/9991
Thursday, June 25, 2015
Here's what happens to their reverse mortgage after your parents die
As more seniors turn to reverse mortgages, their adult children might well be puzzled or concerned about what will happen to that debt when one or both of their parents eventually dies. At that time, questions about how to pay off the loan will need to be resolved -- and relatively quickly.
Loans are due when borrower dies
Nearly all reverse mortgages today are home equity conversion mortgages, or HECMs, which are insured by the Federal Housing Administration. HECMs are subject to certain rules that might not apply to non-HECMs.
The first thing adult children should know about HECMs is that these reverse mortgages technically become due and payable when the borrower dies.
The word "technically" is important because it's understood that a borrower's heirs can't possibly refinance or sell the home on the day of death to satisfy the debt, explains Beth Paterson, a certified reverse mortgage professional at Reverse Mortgages SIDAC, a division of Greenleaf Financial in St. Paul, Minnesota.
A harsh letter
Instead, what usually happens in practice is that the loan servicer sends out a letter that Paterson says might seem insensitive but is intended to inform the heirs of the rules and ascertain their intentions for the loan and property.
"The servicing companies have had issues with people not notifying them and trying to stay in the home, so that's why it needs to be harsh," Paterson says. "My conversation to the consumer is that communication is vital."
Notice of demise
Servicers use a number of resources to find out that a borrower has died. These include the Social Security death index, proprietary databases and annual occupancy letters that typically are sent to reverse mortgage borrowers.
"If they don't get the letter of occupancy back or property taxes or insurance aren't paid, they start doing the next steps: contacting an alternate contact, searching other records or sending someone out to inspect the property and see if someone is living in the house," Paterson says.
Refi, sell or deed
The borrower's heirs aren't required to sell the home to pay off the reverse mortgage, says Cara Pierce, a housing and reverse mortgage counselor at ClearPoint Credit Counseling Solutions in Fresno, California.
But if heirs want to keep the home, they'll have to pay off the loan.
"If they want to get a loan in their own name and pay off the reverse mortgage, they can," Pierce says. "But if they can't and there are no other assets, like life insurance, other property or a 401(k), that they could use to pay off the loan, they will have to sell the property."
When heirs sell, they typically can choose their own real estate broker. The heirs manage the sale and keep any capital gain after the loan and closing costs have been paid.
The borrower's personal belongings and furnishings can be removed. Fixtures, as defined by state law, can't.
A tenant living in the property might have certain rights and protections under state law.
Read more: http://www.bankrate.com/finance/mortgages/pay-reverse-mortgage-after-parent-dies.aspx
Loans are due when borrower dies
Nearly all reverse mortgages today are home equity conversion mortgages, or HECMs, which are insured by the Federal Housing Administration. HECMs are subject to certain rules that might not apply to non-HECMs.
The first thing adult children should know about HECMs is that these reverse mortgages technically become due and payable when the borrower dies.
The word "technically" is important because it's understood that a borrower's heirs can't possibly refinance or sell the home on the day of death to satisfy the debt, explains Beth Paterson, a certified reverse mortgage professional at Reverse Mortgages SIDAC, a division of Greenleaf Financial in St. Paul, Minnesota.
A harsh letter
Instead, what usually happens in practice is that the loan servicer sends out a letter that Paterson says might seem insensitive but is intended to inform the heirs of the rules and ascertain their intentions for the loan and property.
"The servicing companies have had issues with people not notifying them and trying to stay in the home, so that's why it needs to be harsh," Paterson says. "My conversation to the consumer is that communication is vital."
Notice of demise
Servicers use a number of resources to find out that a borrower has died. These include the Social Security death index, proprietary databases and annual occupancy letters that typically are sent to reverse mortgage borrowers.
"If they don't get the letter of occupancy back or property taxes or insurance aren't paid, they start doing the next steps: contacting an alternate contact, searching other records or sending someone out to inspect the property and see if someone is living in the house," Paterson says.
Refi, sell or deed
The borrower's heirs aren't required to sell the home to pay off the reverse mortgage, says Cara Pierce, a housing and reverse mortgage counselor at ClearPoint Credit Counseling Solutions in Fresno, California.
But if heirs want to keep the home, they'll have to pay off the loan.
"If they want to get a loan in their own name and pay off the reverse mortgage, they can," Pierce says. "But if they can't and there are no other assets, like life insurance, other property or a 401(k), that they could use to pay off the loan, they will have to sell the property."
When heirs sell, they typically can choose their own real estate broker. The heirs manage the sale and keep any capital gain after the loan and closing costs have been paid.
The borrower's personal belongings and furnishings can be removed. Fixtures, as defined by state law, can't.
A tenant living in the property might have certain rights and protections under state law.
Read more: http://www.bankrate.com/finance/mortgages/pay-reverse-mortgage-after-parent-dies.aspx
Monday, June 15, 2015
Reverse Mortgages Could Mean Elderly Lose Homes
A recent government study has found adverts for reverse mortgages which largely target seniors can be misleading. Elderly people tempted by these offers could find they end up losing their home rather than gaining financial freedom.
The Consumer Financial Protection Bureau carried out a study showing elderly homeowners are being misled by the advertising for reverse mortgages and this could result in large financial problems. According to the article in CNNMoney.com, many homeowners don’t realize that reverse mortgages are essentially loans which means they eventually have to be paid back. In addition homeowners are confused by the inaccurate and often incomplete information they receive from lenders. This is partly due to the fact that they didn’t read the fine print on the ads which are frequently shown on the Internet and on TV.
A reverse mortgage is a loan that enables homeowners aged 62 or older to release equity in their homes through taking out a loan. Payment and interest on the loan is deferred until they move home, sell up or die.
The study looked at 97 ads from a number of different lenders that were shown in five large urban markets during a one-year period from March 2013. They also conducted interviews with 59 homeowners aged 62 or older to get their overall impression of the ads. The results were interesting as apparently some homeowners thought a reverse mortgage meant they could never lose their home while others thought the money they received through a reverse mortgage was due to home equity built up over the years and therefore there was no reason why they would ever have to pay it back. This shows the information being given out is misleading, because as the study points out homeowners are still liable for insurance and maintenance on the property as well as property taxes. If they fail to pay these then they can end up in foreclosure. This information is typically shown in the fine print which not everyone bothers to, or is able to read.
- See more at: http://realtybiznews.com/reverse-mortgages-could-mean-elderly-lose-homes/98728503/
The Consumer Financial Protection Bureau carried out a study showing elderly homeowners are being misled by the advertising for reverse mortgages and this could result in large financial problems. According to the article in CNNMoney.com, many homeowners don’t realize that reverse mortgages are essentially loans which means they eventually have to be paid back. In addition homeowners are confused by the inaccurate and often incomplete information they receive from lenders. This is partly due to the fact that they didn’t read the fine print on the ads which are frequently shown on the Internet and on TV.
A reverse mortgage is a loan that enables homeowners aged 62 or older to release equity in their homes through taking out a loan. Payment and interest on the loan is deferred until they move home, sell up or die.
The study looked at 97 ads from a number of different lenders that were shown in five large urban markets during a one-year period from March 2013. They also conducted interviews with 59 homeowners aged 62 or older to get their overall impression of the ads. The results were interesting as apparently some homeowners thought a reverse mortgage meant they could never lose their home while others thought the money they received through a reverse mortgage was due to home equity built up over the years and therefore there was no reason why they would ever have to pay it back. This shows the information being given out is misleading, because as the study points out homeowners are still liable for insurance and maintenance on the property as well as property taxes. If they fail to pay these then they can end up in foreclosure. This information is typically shown in the fine print which not everyone bothers to, or is able to read.
- See more at: http://realtybiznews.com/reverse-mortgages-could-mean-elderly-lose-homes/98728503/
Thursday, June 4, 2015
Reverse mortgages making comeback to help seniors
SCOTTSDALE, AZ (KPHO/KTVK) -
Saving money for retirement isn't easy, but some Valley seniors have found a way to make money off the equity of their own home.
Tim Ryan is a reverse mortgage specialist with iReverse Home Loans.
Ryan said that reverse mortgages are making a comeback, with a growing number of seniors looking to create more cash flow.
"We have a lot of people doing it to plan their retirement, take charge of their finances, and live the life style they want to live," Ryan said. "About half of my clients are seniors that do reverse mortgages to just have a better life."
Paul and Caroline Walrad, of Scottsdale, said that their reverse mortgage has provided them more financial flexibility as they get closer to retirement.
"It's a huge sense of relief," Caroline Walrad said. "To feel that you are in one place and can be in one place for the rest of your life is extremely comforting."
"Basically, what it's done is replenish the money we lost in the (housing) crash," said Paul Walrad. "It paid also for medical expenses I had."
The reverse mortgage is still a loan, but instead of making a monthly payment, homeowners can receive a lump sum.. monthly payment or line of credit, based on the amount of equity they have in their house.
To be eligible you must be at least 62 years old, and you must pay off your remaining mortgage before receiving any money.
However, certified public accountant Seth Fink said that reverse mortgages are not for everyone.
According to Fink, there are some drawbacks which include:
Closing costs that can be more expensive than a traditional loan.
Little money left for surviving children.
Heirs will inherit the home with a lien on it.
f you run out of money, you may need to sell the property.
Read more: http://www.kpho.com/story/29234295/reverse-mortgages-making-comeback-to-help-seniors
Saving money for retirement isn't easy, but some Valley seniors have found a way to make money off the equity of their own home.
Tim Ryan is a reverse mortgage specialist with iReverse Home Loans.
Ryan said that reverse mortgages are making a comeback, with a growing number of seniors looking to create more cash flow.
"We have a lot of people doing it to plan their retirement, take charge of their finances, and live the life style they want to live," Ryan said. "About half of my clients are seniors that do reverse mortgages to just have a better life."
Paul and Caroline Walrad, of Scottsdale, said that their reverse mortgage has provided them more financial flexibility as they get closer to retirement.
"It's a huge sense of relief," Caroline Walrad said. "To feel that you are in one place and can be in one place for the rest of your life is extremely comforting."
"Basically, what it's done is replenish the money we lost in the (housing) crash," said Paul Walrad. "It paid also for medical expenses I had."
The reverse mortgage is still a loan, but instead of making a monthly payment, homeowners can receive a lump sum.. monthly payment or line of credit, based on the amount of equity they have in their house.
To be eligible you must be at least 62 years old, and you must pay off your remaining mortgage before receiving any money.
However, certified public accountant Seth Fink said that reverse mortgages are not for everyone.
According to Fink, there are some drawbacks which include:
Closing costs that can be more expensive than a traditional loan.
Little money left for surviving children.
Heirs will inherit the home with a lien on it.
f you run out of money, you may need to sell the property.
Read more: http://www.kpho.com/story/29234295/reverse-mortgages-making-comeback-to-help-seniors
Friday, May 29, 2015
Senior Bank Services Discusses New HECM Reverse Mortgage Figures
Although many reverse mortgage lenders are busy helping seniors with these types of home loans, the latest HECM reverse mortgage endorsements show a small decline. Senior Bank Services is a nationally known website that provides valuable information about products that senior citizens would be interested in. The main source of traffic to this website is from those looking for reverse mortgage information, and localized pages for reverse mortgage lenders to be contacted from interested consumers about reverse mortgages. The latest information that shows the decline in HECM endorsements is less than a couple percent, but states like California continue to grow in reverse mortgages for seniors. To find out more about reverse mortgages, or to speak with a licensed mortgage professional who specializes in these types of loan products visit,
A HECM reverse mortgage is the only reverse mortgage insured by the U.S. Federal Government. It also constitutes most of all the reverse mortgages done in this country. Individuals 62 or older and have equity in their homes can apply for this type of loan. The different between a traditional mortgage and reverse mortgage is, seniors that receive a reverse mortgage do not have to make mortgage payments. They are still responsible for taxes and insurance as well as maintaining the home. A popular trend in reverse mortgages is using one to buy a home, called a HECM purchase, or reverse purchase. The senior places a large down-payment on the home when buying and then lives there without the worry of making a mortgage payment. To learn how to buy a home using a HECM purchase, or to speak with a reverse mortgage specialist call the number provided.
About the Company: SeniorBankServices. com is a nationwide reverse mortgage information website that offers reverse mortgage information and connects prospective clients to qualified licensed reverse mortgage brokers and lenders to homeowners in Riverside, San Diego, Los Angeles, and San Bernardino, and throughout the state of California. The company and its partners follow all rules and regulations regarding reverse mortgages. To learn more about reverse mortgage lenders in San Diego, or any other loan product, visit the company website.
fore more information http://www.prweb.com/releases/hecm-reverse-mortgages/reverse-mortgage-lenders/prweb12751848.htm
A HECM reverse mortgage is the only reverse mortgage insured by the U.S. Federal Government. It also constitutes most of all the reverse mortgages done in this country. Individuals 62 or older and have equity in their homes can apply for this type of loan. The different between a traditional mortgage and reverse mortgage is, seniors that receive a reverse mortgage do not have to make mortgage payments. They are still responsible for taxes and insurance as well as maintaining the home. A popular trend in reverse mortgages is using one to buy a home, called a HECM purchase, or reverse purchase. The senior places a large down-payment on the home when buying and then lives there without the worry of making a mortgage payment. To learn how to buy a home using a HECM purchase, or to speak with a reverse mortgage specialist call the number provided.
About the Company: SeniorBankServices. com is a nationwide reverse mortgage information website that offers reverse mortgage information and connects prospective clients to qualified licensed reverse mortgage brokers and lenders to homeowners in Riverside, San Diego, Los Angeles, and San Bernardino, and throughout the state of California. The company and its partners follow all rules and regulations regarding reverse mortgages. To learn more about reverse mortgage lenders in San Diego, or any other loan product, visit the company website.
fore more information http://www.prweb.com/releases/hecm-reverse-mortgages/reverse-mortgage-lenders/prweb12751848.htm
Tuesday, May 26, 2015
Now it’s tougher to get a reverse mortgage
New federal rules that kicked in last month may make it harder for some people to qualify for reverse mortgages. But they’ll also make it more likely that those who do receive reverse mortgages will have fewer worries about them.
Reverse mortgages are FHA-insured loans available to homeowners age 62 or older that let the borrowers convert their home equity to cash without making monthly payments; they’re repaid when the borrower sells the home, moves or dies. A 65-year-old with a $250,000 home might be allowed to borrow $127,000 with a reverse mortgage, according to the Boston College Center for Retirement Research.
The new financial assessments
Under the new rules (which sprang from a 2013 law), to get a reverse mortgage, you’ll now be subject to what’s known as a “financial assessment” — much like what lenders do when sizing up applicants for regular mortgages. Lenders will now review the income, cash flow and credit reports of prospects.
Basically, you’ll need to prove that you have the “willingness” and “capacity” to continue paying your home’s property taxes and insurance premiums. If the assessment convinces the reverse mortgage lender that you won’t have the cash to make those home-related payments, you may be rejected. That’s because a reverse mortgage borrower who fails to pay property taxes or homeowner’s insurance could be tossed out of the home and the house could then go into foreclosure.
“I think these changes are positive overall,” says Phil Stevenson, a Certified Reverse Mortgage Professional and principal of PS Financial Services in Coral Gables, Fla. “They’ll affect 5% to 10% of potential borrowers and, in reality, those are the ones who probably shouldn’t have done reverse mortgages in the past.”
The new rules will undoubtedly make the reverse-mortgage application process more complex, though, and will lengthen the time it’ll take for loan approval, at least initially.
read more: http://www.marketwatch.com/story/now-its-tougher-to-get-a-reverse-mortgage-2015-05-23
Reverse mortgages are FHA-insured loans available to homeowners age 62 or older that let the borrowers convert their home equity to cash without making monthly payments; they’re repaid when the borrower sells the home, moves or dies. A 65-year-old with a $250,000 home might be allowed to borrow $127,000 with a reverse mortgage, according to the Boston College Center for Retirement Research.
The new financial assessments
Under the new rules (which sprang from a 2013 law), to get a reverse mortgage, you’ll now be subject to what’s known as a “financial assessment” — much like what lenders do when sizing up applicants for regular mortgages. Lenders will now review the income, cash flow and credit reports of prospects.
Basically, you’ll need to prove that you have the “willingness” and “capacity” to continue paying your home’s property taxes and insurance premiums. If the assessment convinces the reverse mortgage lender that you won’t have the cash to make those home-related payments, you may be rejected. That’s because a reverse mortgage borrower who fails to pay property taxes or homeowner’s insurance could be tossed out of the home and the house could then go into foreclosure.
“I think these changes are positive overall,” says Phil Stevenson, a Certified Reverse Mortgage Professional and principal of PS Financial Services in Coral Gables, Fla. “They’ll affect 5% to 10% of potential borrowers and, in reality, those are the ones who probably shouldn’t have done reverse mortgages in the past.”
The new rules will undoubtedly make the reverse-mortgage application process more complex, though, and will lengthen the time it’ll take for loan approval, at least initially.
read more: http://www.marketwatch.com/story/now-its-tougher-to-get-a-reverse-mortgage-2015-05-23
Thursday, May 14, 2015
Cautionary tales: Reverse mortgages could lead to problems
FAIRWAY, KS (KCTV) -
Reverse home mortgages are complicated and not for everybody.
They are designed for seniors - 62 or older - to borrow against their home's equity. But where there is money, there are scammers.
With a regular mortgage, homeowners make monthly payments to a lender. In a reverse mortgage, a lender pays the homeowner.
The loan is repaid when the homeowner passes away, sells their home or when the home is no longer their primary residence.
That means if someone decides to sell the family home, they are not going to get as much.
"If you have a reverse mortgage on your house, and you've had it for several years. the more money you get, the more money you're going to owe on your house the less money you're going to get when you sell it," said Aaron Reese with the Better Business Bureau.
Reverse home mortgages aren't for everybody, but they do have their benefits.
"It is a really great vehicle for seniors who choose to age in place. And they don't want to out-live their money, so they'll have a little extra money available," said Victoria Duke, a professor of Law and reverse mortgage expert.
The federal government highly recommends talking to a counselor who can walk someone through the process and help them decide if it's best for them.
If the lender doesn't offer that, that is a red flag. Another red flag is who to make the check out to.
"He said, 'you are going to have to pay us $800 for three months. can you afford that?' I said, 'I guess so,'" one mortgage scam victim said.
Just last year, a metro man was charged with ripping off a 70-year-old Excelsior Springs woman in a reverse mortgage scam.
The Housing of Urban Development says Robert Todd convinced her to write the checks to him instead of the bank.
"Oh, I was mad, really upset," the victim said.
Luckily, she got her money back once Todd was charged.
"If you're looking to get a reverse mortgage, you're going to want to get some outside advice. Talk to a financial adviser or someone you know and trust that is good with finances and might know what is your best option," Reese said.
Scammers love using reverse home mortgages because they think senior citizens are easy targets.
Read more: http://www.kctv5.com/story/29056290/cautionary-tales-reverse-mortgages-could-lead-to-problems
Reverse home mortgages are complicated and not for everybody.
They are designed for seniors - 62 or older - to borrow against their home's equity. But where there is money, there are scammers.
With a regular mortgage, homeowners make monthly payments to a lender. In a reverse mortgage, a lender pays the homeowner.
The loan is repaid when the homeowner passes away, sells their home or when the home is no longer their primary residence.
That means if someone decides to sell the family home, they are not going to get as much.
"If you have a reverse mortgage on your house, and you've had it for several years. the more money you get, the more money you're going to owe on your house the less money you're going to get when you sell it," said Aaron Reese with the Better Business Bureau.
Reverse home mortgages aren't for everybody, but they do have their benefits.
"It is a really great vehicle for seniors who choose to age in place. And they don't want to out-live their money, so they'll have a little extra money available," said Victoria Duke, a professor of Law and reverse mortgage expert.
The federal government highly recommends talking to a counselor who can walk someone through the process and help them decide if it's best for them.
If the lender doesn't offer that, that is a red flag. Another red flag is who to make the check out to.
"He said, 'you are going to have to pay us $800 for three months. can you afford that?' I said, 'I guess so,'" one mortgage scam victim said.
Just last year, a metro man was charged with ripping off a 70-year-old Excelsior Springs woman in a reverse mortgage scam.
The Housing of Urban Development says Robert Todd convinced her to write the checks to him instead of the bank.
"Oh, I was mad, really upset," the victim said.
Luckily, she got her money back once Todd was charged.
"If you're looking to get a reverse mortgage, you're going to want to get some outside advice. Talk to a financial adviser or someone you know and trust that is good with finances and might know what is your best option," Reese said.
Scammers love using reverse home mortgages because they think senior citizens are easy targets.
Read more: http://www.kctv5.com/story/29056290/cautionary-tales-reverse-mortgages-could-lead-to-problems
Tuesday, May 5, 2015
Family-funded reverse mortgage can help elderly parents keep home
WASHINGTON — Could there be a way to help senior homeowners with their cash flow needs without saddling them — and ultimately their families — with high costs?
That's a key question at a time when millions of seniors are flooding into their post-retirement years, many of them with equity in their homes but insufficient income to handle expenses over the long term. If they want to stay in their homes, they can opt for a government-insured reverse mortgage, which may provide them cash in exchange for repayment plus interest after they die, move out or sell. Or they can apply for a home equity line of credit from a bank.
But there are problems with both choices. The dominant government-insured reverse mortgage program comes with high upfront lender fees, mortgage insurance premiums and newly toughened financial qualification requirements. A home equity credit line may be difficult for seniors to obtain because they cannot qualify on credit or debt-to-income grounds in today's stricter underwriting environment.
As of Friday nationwide, however, some seniors had a new option — one that ties into increasingly popular "peer-to-peer" lending. It's a family-funded reverse mortgage known as the "Caregiver" loan. It allows any number of children and grandchildren to pool resources to provide a flexible line of credit at interest rates far below what commercial reverse mortgage lenders charge and with far fewer hassles. In intra-family lending, there's no bank or mortgage company. Family members are the bank.
Here's a simplified example: Say you and two siblings want to help Mom and Dad, who are in their late 70s. You and your siblings are all doing well enough that you have at least some cash to spare. Ultimately, you want to retain your parents' house for the estate once your parents pass away, keep costs to a minimum and only sell the property when you, not a faraway bank, choose to.
So you sit down with Mom and Dad and determine that, at least for the foreseeable future, they will need about $1,500 in additional income a month. You and your siblings agree to apportion the payments among yourselves in some way, maybe a commitment of $500 a month each for a period of years. You also pick an interest rate that achieves a good result for you and your parents — say 3% annually. That's much lower than a commercial lender could charge but higher than what you've been earning on your bank deposits or money market funds. There are no required fees upfront — hey, it's Mom and Dad.
What you need at this stage is help with putting all the details of your agreement into a legally binding reverse mortgage, recordable at the local courthouse. Enter National Family Mortgage, a Massachusetts company that has helped facilitate and service nearly $290 million in intra-family home loans in recent years — typically parents helping kids buy first homes. Now National Family is expanding its menu to include reverse mortgages.
see more at: http://www.latimes.com/business/realestate/la-fi-harney-20150503-story.html
That's a key question at a time when millions of seniors are flooding into their post-retirement years, many of them with equity in their homes but insufficient income to handle expenses over the long term. If they want to stay in their homes, they can opt for a government-insured reverse mortgage, which may provide them cash in exchange for repayment plus interest after they die, move out or sell. Or they can apply for a home equity line of credit from a bank.
But there are problems with both choices. The dominant government-insured reverse mortgage program comes with high upfront lender fees, mortgage insurance premiums and newly toughened financial qualification requirements. A home equity credit line may be difficult for seniors to obtain because they cannot qualify on credit or debt-to-income grounds in today's stricter underwriting environment.
As of Friday nationwide, however, some seniors had a new option — one that ties into increasingly popular "peer-to-peer" lending. It's a family-funded reverse mortgage known as the "Caregiver" loan. It allows any number of children and grandchildren to pool resources to provide a flexible line of credit at interest rates far below what commercial reverse mortgage lenders charge and with far fewer hassles. In intra-family lending, there's no bank or mortgage company. Family members are the bank.
Here's a simplified example: Say you and two siblings want to help Mom and Dad, who are in their late 70s. You and your siblings are all doing well enough that you have at least some cash to spare. Ultimately, you want to retain your parents' house for the estate once your parents pass away, keep costs to a minimum and only sell the property when you, not a faraway bank, choose to.
So you sit down with Mom and Dad and determine that, at least for the foreseeable future, they will need about $1,500 in additional income a month. You and your siblings agree to apportion the payments among yourselves in some way, maybe a commitment of $500 a month each for a period of years. You also pick an interest rate that achieves a good result for you and your parents — say 3% annually. That's much lower than a commercial lender could charge but higher than what you've been earning on your bank deposits or money market funds. There are no required fees upfront — hey, it's Mom and Dad.
What you need at this stage is help with putting all the details of your agreement into a legally binding reverse mortgage, recordable at the local courthouse. Enter National Family Mortgage, a Massachusetts company that has helped facilitate and service nearly $290 million in intra-family home loans in recent years — typically parents helping kids buy first homes. Now National Family is expanding its menu to include reverse mortgages.
see more at: http://www.latimes.com/business/realestate/la-fi-harney-20150503-story.html
Wednesday, April 15, 2015
New Research: Reverse Mortgages, SPIAs And Retirement Income
Retirees need longevity protection and additional funds. Annuities and reverse mortgages can meet those needs. While annuities have been researched extensively, reverse mortgages haven’t received as much attention. We need research on how to fit these two products together in overall retirement plans. I’ll launch that effort here.
Let’s say a new client walks into an advisor’s office and says, “I want to build a secure income for retirement and I’ve heard about both annuities and reverse mortgages. What should I do?” The advisor’s answer is likely to be: “Let’s focus on whether you should buy an annuity and leave the reverse mortgage for later in retirement. You can tap home equity in the future if you need to.”
But that may not be the best answer. It might be better to set up a reverse mortgage line of credit at the time of retirement for use later on, or opt for the tenure option that will make level monthly payments for as long as the borrower occupies their home. Or an even better option might be to purchase a single premium immediate annuity (SPIA) and combine it with either a reverse mortgage line of credit or the tenure option.
Which alternative is best? To reduce the inevitable confusion, I’ll look at these alternatives conceptually, and then use an example to model the financial outcomes.
First things first
We need to ask questions before making recommendations: How much savings does the client have? Will systematic withdrawals or purchasing annuities provide adequate retirement funds, or does the client need even more income? How long does the client plan to stay in their current home? Is the home mortgaged? Does the client hope to leave the home as a bequest or is it more important to generate retirement income? Does the client have long-term care insurance, or is the plan to rely on home equity? If a reverse mortgage line of credit is set up, what is the likelihood the client will use it?
Reverse mortgages are offered under the home equity conversion mortgage (HECM) program administered by HUD and insured by the FHA. A new version of the program was introduced in 2013 offering three alternatives – line of credit (LOC), payments for set periods, or a tenure option. Under the HECM program, borrowers need to be age 62 or older, and the amount of home value that can be mortgaged is capped at $625,000. There are non-HECM proprietary reverse mortgages for larger amounts, but they are not government guaranteed and do not have the HECM standard loan provisions.
Reverse mortgages have significant up-front fees, so effective borrowing costs are high if only small amounts are borrowed, or borrowed for a short time. An example from the National Reverse Mortgage Lenders Association (NRLMA) calculator estimates fees of $8,301 for a $250,000 home. Lending limits (referred to as “principal limits”) depend on the age of the borrower and interest rates. For a 65-year-old in this $250,000 home, the current principal limit would be $135,500, so the up-front costs would be 3.3% of the home value or 6.1% of the principal limit. The fees cover loan origination, mortgage insurance and other closing costs, and can be financed as part of the loan, but they come out of the funds available for lending.
see more: http://www.valuewalk.com/2015/04/nreverse-mortgages-spias/
Let’s say a new client walks into an advisor’s office and says, “I want to build a secure income for retirement and I’ve heard about both annuities and reverse mortgages. What should I do?” The advisor’s answer is likely to be: “Let’s focus on whether you should buy an annuity and leave the reverse mortgage for later in retirement. You can tap home equity in the future if you need to.”
But that may not be the best answer. It might be better to set up a reverse mortgage line of credit at the time of retirement for use later on, or opt for the tenure option that will make level monthly payments for as long as the borrower occupies their home. Or an even better option might be to purchase a single premium immediate annuity (SPIA) and combine it with either a reverse mortgage line of credit or the tenure option.
Which alternative is best? To reduce the inevitable confusion, I’ll look at these alternatives conceptually, and then use an example to model the financial outcomes.
First things first
We need to ask questions before making recommendations: How much savings does the client have? Will systematic withdrawals or purchasing annuities provide adequate retirement funds, or does the client need even more income? How long does the client plan to stay in their current home? Is the home mortgaged? Does the client hope to leave the home as a bequest or is it more important to generate retirement income? Does the client have long-term care insurance, or is the plan to rely on home equity? If a reverse mortgage line of credit is set up, what is the likelihood the client will use it?
Reverse mortgages are offered under the home equity conversion mortgage (HECM) program administered by HUD and insured by the FHA. A new version of the program was introduced in 2013 offering three alternatives – line of credit (LOC), payments for set periods, or a tenure option. Under the HECM program, borrowers need to be age 62 or older, and the amount of home value that can be mortgaged is capped at $625,000. There are non-HECM proprietary reverse mortgages for larger amounts, but they are not government guaranteed and do not have the HECM standard loan provisions.
Reverse mortgages have significant up-front fees, so effective borrowing costs are high if only small amounts are borrowed, or borrowed for a short time. An example from the National Reverse Mortgage Lenders Association (NRLMA) calculator estimates fees of $8,301 for a $250,000 home. Lending limits (referred to as “principal limits”) depend on the age of the borrower and interest rates. For a 65-year-old in this $250,000 home, the current principal limit would be $135,500, so the up-front costs would be 3.3% of the home value or 6.1% of the principal limit. The fees cover loan origination, mortgage insurance and other closing costs, and can be financed as part of the loan, but they come out of the funds available for lending.
see more: http://www.valuewalk.com/2015/04/nreverse-mortgages-spias/
Monday, March 9, 2015
Terms of reverse mortgages continue to be misunderstood
A new government report shows many seniors are taking out reverse mortgages on their homes without fully understanding the ramifications, leading to foreclosures among borrowers and a tangle of problems for heirs after the borrower dies.
“Consumer complaints tell us that the complex terms of reverse mortgages continue to be misunderstood,” said Richard Cordray, director of the Consumer Financial Protection Bureau, which last week released a report highlighting the top complaints the agency received about reverse mortgages over the last three years.
A reverse mortgage is a type of loan that allows homeowners age 62 and older to tap a portion of the equity in their homes. The money typically is paid out in a lump sum or in regular fixed payments, with fees and interest added to the balance each month. Unlike a home equity loan, the money does not have to be repaid until the borrower dies, moves out or sells the home.
The loans can be a life line for house-rich, cash-poor seniors struggling with daily living expenses. Reverse mortgages also have been used to help retirees improve their lifestyles, allowing them to buy the summer home they had always dreamed about, for example.
But problems and confusion are expected to continue as more baby boomers retiring with little or no savings turn to the loans for help getting by.
The Consumer Financial Protection Bureau cited a 2010 Federal Reserve report concluding that in the 55-to-64 age group, 41 percent had no retirement savings. Even among those who had a nest egg, the average balance was only $103,200, the report said. Many complaints that the protection bureau received showed people were confused about the way reverse mortgages work.
“Many consumers struggle with understanding how quickly their loan balance will go up and their home equity will fall,” the report said. As a result, many borrowers who wanted to refinance their loans were frustrated because there wasn’t enough remaining equity in their homes.
One of the most common types of complaints involved the inability of a borrower’s family members to assume the loan in order to keep the house when the borrower died, according to the report.
Reverse mortgages prohibit loan assumptions because actuarial tables are used to help determine the loan amounts. Adult children may keep the home only by paying off the loan or by paying 95 percent of the current appraised value of the house.
Those rules can present problems for multigenerational households when family members are living in the home at the time of the borrower’s death.
Heirs also complained about what they believed were inflated appraisals that required them to pay more than they expected, the report said.
Another common complaint involved the shock of having to sell a home or face foreclosure when a spouse died because the surviving spouse’s name was not on the reverse mortgage. Some couples were advised to take a reverse mortgage in the older spouse’s name to qualify for a bigger loan.
“Some consumers report that their loan originator falsely assured them they would be able to add the other spouse to the loan at a later date,” the report said.
To help more seniors stay in their homes, the U.S. Department of Housing and Urban Development — which insures most reverse mortgages through its Home Equity Conversion Mortgage program — implemented a new rule allowing surviving spouses who meet certain conditions to remain in the home regardless of their borrowing status.
The rule only applies to reverse mortgages originated through HUD’s program after Aug. 4, 2014.
see more: http://www.detroitnews.com/story/business/personal-finance/2015/03/09/terms-reverse-mortgages-continue-misunderstood/24619519/
“Consumer complaints tell us that the complex terms of reverse mortgages continue to be misunderstood,” said Richard Cordray, director of the Consumer Financial Protection Bureau, which last week released a report highlighting the top complaints the agency received about reverse mortgages over the last three years.
A reverse mortgage is a type of loan that allows homeowners age 62 and older to tap a portion of the equity in their homes. The money typically is paid out in a lump sum or in regular fixed payments, with fees and interest added to the balance each month. Unlike a home equity loan, the money does not have to be repaid until the borrower dies, moves out or sells the home.
The loans can be a life line for house-rich, cash-poor seniors struggling with daily living expenses. Reverse mortgages also have been used to help retirees improve their lifestyles, allowing them to buy the summer home they had always dreamed about, for example.
But problems and confusion are expected to continue as more baby boomers retiring with little or no savings turn to the loans for help getting by.
The Consumer Financial Protection Bureau cited a 2010 Federal Reserve report concluding that in the 55-to-64 age group, 41 percent had no retirement savings. Even among those who had a nest egg, the average balance was only $103,200, the report said. Many complaints that the protection bureau received showed people were confused about the way reverse mortgages work.
“Many consumers struggle with understanding how quickly their loan balance will go up and their home equity will fall,” the report said. As a result, many borrowers who wanted to refinance their loans were frustrated because there wasn’t enough remaining equity in their homes.
One of the most common types of complaints involved the inability of a borrower’s family members to assume the loan in order to keep the house when the borrower died, according to the report.
Reverse mortgages prohibit loan assumptions because actuarial tables are used to help determine the loan amounts. Adult children may keep the home only by paying off the loan or by paying 95 percent of the current appraised value of the house.
Those rules can present problems for multigenerational households when family members are living in the home at the time of the borrower’s death.
Heirs also complained about what they believed were inflated appraisals that required them to pay more than they expected, the report said.
Another common complaint involved the shock of having to sell a home or face foreclosure when a spouse died because the surviving spouse’s name was not on the reverse mortgage. Some couples were advised to take a reverse mortgage in the older spouse’s name to qualify for a bigger loan.
“Some consumers report that their loan originator falsely assured them they would be able to add the other spouse to the loan at a later date,” the report said.
To help more seniors stay in their homes, the U.S. Department of Housing and Urban Development — which insures most reverse mortgages through its Home Equity Conversion Mortgage program — implemented a new rule allowing surviving spouses who meet certain conditions to remain in the home regardless of their borrowing status.
The rule only applies to reverse mortgages originated through HUD’s program after Aug. 4, 2014.
see more: http://www.detroitnews.com/story/business/personal-finance/2015/03/09/terms-reverse-mortgages-continue-misunderstood/24619519/
Sunday, February 22, 2015
How Not To Get Screwed When Shopping For A Mortgage
Mortgage rates are the lowest they’ve been since May 2013, according to Freddie Mac . The good news is that buyers can now get a 30-year fixed rate mortgage for as little as 3.69%. The bad news is that eager homeowners are wading into a thick sludge of documents, come-ons and deception.
The two most popular styles of mortgages are fixed and adjustable interest. A fixed interest loan remains the same over the (usually) 30-year term. An adjustable interest loan fluctuates annually based on certain indices. So, if the rate on the one-year Treasury Constant Maturity jumps, your interest rate will too. Not surprisingly, in this environment of record low rates, adjustable loans are not very popular. There are also “hybrid” loans which feature a fixed rate for a certain period of time (usually 3-10 years), and an adjustable rate thereafter.
True, most of the more questionable loans, like stated income, interest-only and negative amortization have faded from the scene in the wake of the 2008 financial crisis. Typically unconventional or “hard money” lenders (private individuals lending on the asset rather than the borrower’s ability to repay) will offer these. Consumer finance protection regulations have nearly forced banks and conventional lenders out of this space, but there are still plenty of traps set for unsuspecting mortgage shoppers, especially those in hot pursuit of a bargain.
Whether you’re looking for a $300,000 mortgage or a $3 million mortgage, here’s how to make sure that when shopping for a loan, you don’t overspend.
Cheaper Isn’t Necessarily Better
Mortgages can be risky and secured by the thing that matters most– your home. Rather than search for the cheapest option, focus on reliability. Ads touting low rates from anonymous companies are often bait and switch scams. Reviews are
read more: http://www.forbes.com/sites/vanessagrout/2015/02/19/how-not-to-get-screwed-when-shopping-for-a-mortgage/
The two most popular styles of mortgages are fixed and adjustable interest. A fixed interest loan remains the same over the (usually) 30-year term. An adjustable interest loan fluctuates annually based on certain indices. So, if the rate on the one-year Treasury Constant Maturity jumps, your interest rate will too. Not surprisingly, in this environment of record low rates, adjustable loans are not very popular. There are also “hybrid” loans which feature a fixed rate for a certain period of time (usually 3-10 years), and an adjustable rate thereafter.
True, most of the more questionable loans, like stated income, interest-only and negative amortization have faded from the scene in the wake of the 2008 financial crisis. Typically unconventional or “hard money” lenders (private individuals lending on the asset rather than the borrower’s ability to repay) will offer these. Consumer finance protection regulations have nearly forced banks and conventional lenders out of this space, but there are still plenty of traps set for unsuspecting mortgage shoppers, especially those in hot pursuit of a bargain.
Whether you’re looking for a $300,000 mortgage or a $3 million mortgage, here’s how to make sure that when shopping for a loan, you don’t overspend.
Cheaper Isn’t Necessarily Better
Mortgages can be risky and secured by the thing that matters most– your home. Rather than search for the cheapest option, focus on reliability. Ads touting low rates from anonymous companies are often bait and switch scams. Reviews are
read more: http://www.forbes.com/sites/vanessagrout/2015/02/19/how-not-to-get-screwed-when-shopping-for-a-mortgage/
Friday, February 20, 2015
Reverse Mortgages: The Rewards And Risks
One of the greatest challenges facing retirees, particularly in today’s low-interest rate environment, is generating sufficient income for everyday living expenses. And for the 41% of Americans aged 55 to 64 with no retirement savings, their home may become their most effective way to fund retirement.
The combination of those two trends makes reverse mortgages so appealing to so many people. With a reverse mortgage, a homeowner age 62 or older can turn the value of his or her home into cash, without having to make monthly payments or moving. You can take the cash as a lump sum, in equal installments, or as needed through a line of credit.
As Walter Updegrave recently noted in his RealDealRetirement blog, a 65-year-old with a $250,000 home might be able to borrow up to $127,000 through a reverse mortgage, according to the Boston College Center for Retirement Research.
But reverse mortgages have drawbacks, too.
A reverse mortgage can be an extremely expensive and tricky way to borrow, so you need to understand the risks and costs before proceeding. It ensures that a significant portion of your home equity will be given to the bank in the form of fees and interest, rather than to your own retirement funds or your estate.
Implications For Your Family
A reverse mortgage can also have serious implications for your surviving spouse and family after you die — a family member living in the house who didn’t go in on the loan could be forced to move out — so you’ll need to factor this in when deciding whether to sign up.
It’s not too surprising that The Consumer Financial Protection Bureau (CFPB) has received 1,200 reverse mortgage complaints since December 2011, according to the federal agency’s recent report about them. As the report said: “Many older consumers and their families are confused and frustrated by the terms and conditions of reverse mortgages.”
read more http://www.forbes.com/sites/nextavenue/2015/02/19/reverse-mortgages-the-rewards-and-risks/
The combination of those two trends makes reverse mortgages so appealing to so many people. With a reverse mortgage, a homeowner age 62 or older can turn the value of his or her home into cash, without having to make monthly payments or moving. You can take the cash as a lump sum, in equal installments, or as needed through a line of credit.
As Walter Updegrave recently noted in his RealDealRetirement blog, a 65-year-old with a $250,000 home might be able to borrow up to $127,000 through a reverse mortgage, according to the Boston College Center for Retirement Research.
But reverse mortgages have drawbacks, too.
A reverse mortgage can be an extremely expensive and tricky way to borrow, so you need to understand the risks and costs before proceeding. It ensures that a significant portion of your home equity will be given to the bank in the form of fees and interest, rather than to your own retirement funds or your estate.
Implications For Your Family
A reverse mortgage can also have serious implications for your surviving spouse and family after you die — a family member living in the house who didn’t go in on the loan could be forced to move out — so you’ll need to factor this in when deciding whether to sign up.
It’s not too surprising that The Consumer Financial Protection Bureau (CFPB) has received 1,200 reverse mortgage complaints since December 2011, according to the federal agency’s recent report about them. As the report said: “Many older consumers and their families are confused and frustrated by the terms and conditions of reverse mortgages.”
read more http://www.forbes.com/sites/nextavenue/2015/02/19/reverse-mortgages-the-rewards-and-risks/
Monday, January 5, 2015
Reverse mortgages: Not for everyone
Is converting a standard mortgage into a reverse mortgage a good idea? The letter below started me thinking about this question.
“Will I be better off 10 years down the road if I take out a reverse mortgage in order to pay off the balance on my standard mortgage? I am paying 3 percent on that mortgage, and have been told that reverse mortgages are available at 2.5 percent or less. If I did this, I would invest the $2,107 I am now paying monthly for principal and interest. I am 76, the house I live in is worth $626,000, and my current mortgage balance is $380,000.”
I decided that whether this shift made sense depended heavily on the objectives of the senior borrower. Broadly, they fall into two groups.
The author of the letter asks whether transitioning to a reverse mortgage would make him wealthier in 10 years than staying with his current mortgage. He is a “wealth maximizer,” probably because he is looking ahead to sell his home at some point, or wants to leave as large an estate as possible. But paying off his mortgage with the proceeds of a reverse mortgage would reduce his wealth.
If he stays with his mortgage, his $380,000 balance would be paid down to $218,253 in 10 years. If instead he pays off the balance now with the proceeds from an adjustable rate HECM, available at 2.154 percent, in 10 years he will owe $704,343. Investing the monthly payment of $2,107 at 1 percent, which is about the highest super-safe return that is available today, would generate $218,253 over 10 years. But that leaves him with $267,837 less wealth than if he had stayed with the standard mortgage.
read more: http://triblive.com/business/headlines/7444532-74/mortgage-percent-reverse#axzz3Nyyq8j4Z
“Will I be better off 10 years down the road if I take out a reverse mortgage in order to pay off the balance on my standard mortgage? I am paying 3 percent on that mortgage, and have been told that reverse mortgages are available at 2.5 percent or less. If I did this, I would invest the $2,107 I am now paying monthly for principal and interest. I am 76, the house I live in is worth $626,000, and my current mortgage balance is $380,000.”
I decided that whether this shift made sense depended heavily on the objectives of the senior borrower. Broadly, they fall into two groups.
The author of the letter asks whether transitioning to a reverse mortgage would make him wealthier in 10 years than staying with his current mortgage. He is a “wealth maximizer,” probably because he is looking ahead to sell his home at some point, or wants to leave as large an estate as possible. But paying off his mortgage with the proceeds of a reverse mortgage would reduce his wealth.
If he stays with his mortgage, his $380,000 balance would be paid down to $218,253 in 10 years. If instead he pays off the balance now with the proceeds from an adjustable rate HECM, available at 2.154 percent, in 10 years he will owe $704,343. Investing the monthly payment of $2,107 at 1 percent, which is about the highest super-safe return that is available today, would generate $218,253 over 10 years. But that leaves him with $267,837 less wealth than if he had stayed with the standard mortgage.
read more: http://triblive.com/business/headlines/7444532-74/mortgage-percent-reverse#axzz3Nyyq8j4Z
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