First the basic definition: A reverse mortgage is a loan against the equity in the home owned by a senior individual or couple. In most cases the owner(s) must be at least 62 years of age. The loan provides monthly income for the owners, usually for the rest of their lives, or until they sell or move from the property. It can also be taken as a lump sum, line of credit or combination of those options.
For years there have been three primary reverse mortgage plans available — Federal Housing Administration’s Home Equity Conversion Mortgage, Fannie Mae’s Home Keeper plan and the Financial Freedom Cash Account. The plan’s concept has become more popular in recent months and years with senior homeowners. This has motivated many of the nation’s large banks and mortgage lenders to start offering reverse mortgage products.
Some of those lenders are trying to edge out competitors by lowering their fees and increasing their payouts. This will probably upset some borrowers that have already committed themselves to more costly
programs.
One lender has reduced the minimum age requirement to 60. Others are making loans on second homes, and are offering jumbo reverse mortgages for high-end homes valued up to $10 million.
The key reasons for the growing activity in this area are twofold. First, cost of living continues to grow while seniors are often living on fixed incomes. They need the extra monthly income to meet their rising financial needs. Also, there is a growing number of senior homeowners, with baby boomers now reaching retirement age.
These factors raise the antennas of banks and lender firms. They see it as an opportunity for a new and lucrative profit center — one that will undoubtedly grow in coming years.
One of the problems created by all the new firms jumping on the reverse mortgage wagon is more confusion for prospective borrowers. It was puzzling enough before the recent developments, but now it can be downright frustrating to seniors studying the various plans and trying to determine the one that would best meet their personal needs.
The reverse mortgage plans always look great when discussing it with a representative of a firm. One point those reps don’t like to focus on more than necessary is the fees, normally paid upfront. They can be very high, often 5 percent of the home’s current value or more. They can be rolled into the loan amount but will ultimately have to be paid with interest.
Q: When will it be a good time to buy real estate again?
A: The next 18 months will be a particularly good time to buy real estate, according to Jim Wagner, an attorney specializing in real estate investments and retirement planning issues. He notes the following reasons:
Home construction starts are now at the lowest volume in the past 14 years. Foreclosures are on the rise, providing many good buying opportunities. Inventories of available homes are at a high volume. And housing prices are declining in most markets. He also noted that mortgage interest rates remain at historically low levels. He recommends the use of a self-directed retirement plan.
“The ability to access IRA monies to purchase foreclosed homes or other properties, or to offer private loans when credit is tight, puts the self-directed IRA holder ahead of the game,” Wagner said.
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source: timescall.com
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