Posted on 03/25/2009 12:41:39 PM PDT by 2ndDivisionVet
OAKLAND, CA - More senior citizens are looking into reverse mortgage loans as a way to offset the income that has vanished as the result of losses in their investments. This is from data gleaned by Golden Gateway Financial here from usage data for its online reverse mortgage calculator.
However, on the other side of the equation, the company said, homeowners are seeing their home values drop, as evidenced by changes in the S&P/Case-Shiller Home Price Indices.
"For many older Americans, the time to act to stave off continuing losses is now," said Eric Bachman, founder and chief executive of Golden Gateway Financial. "Retirees who are unable to tap their investments or even return to work are turning to their home as their last line of defense, only to find its value is greatly diminished. This economy is effectively rewriting the financial rules of retirement."
According to the company, 46.1% of those researching a reverse mortgage during the fourth quarter had a forward mortgage on their property, compared with 51.4% in the first quarter, 53.4% in the second quarter and 53.8% in the third.
Golden Gateway said this data backs up its hypothesis about using a reverse mortgage to replace investment income.
The average home value slipped from $449,200 in the first quarter of 2008 down to $412,627 for the fourth quarter.
For older Americans considering tapping their home equity to help fund their retirement, a drop in home value corresponds to a similar loss in cash available through a reverse mortgage. The company advises potential borrowers already hurt by investment or job loss to consider locking in their home value now in order to avoid future declines in available equity.
"For these borrowers it makes sense to avoid selling stocks or other assets at or close to the bottom when a reverse mortgage allows them to participate in the potential upside of a rebound in property values," continued Mr. Bachman.
The hardest part is to find someone you trust to evaluate your situation and tell you the upside and downside honestly.
Please explain why it's a bad idea, specifics pleasek!
Sounds like they took more lump sum to buy toys. Ther fault is not reverse mortgage, it’s that they were impulsive and spent the money on toys.
Uh, no. Could be helful to fixed incomer who wants to stay in the house.
The senior taking the mortgage has to decide if they need the money more than they want to leave it behind. They may not have much choice.
Other options, the family supports the person and they stay in the house, no reverse mortgage.
Move to senior facility under medicaid (good luck).
If the individual is capable, they make the decision. Couples generally want to stay in their house. After the death of one, it's a coin toss.
I would add, moving to a senior facility or in with the kids, frees up the house to generate rental income. I’m working with a client on that option now. She has fixed up her house nicely and can’t stand the thought of renters, but she needs to move and wants to pass the house along.
For some people they are an ok last resort. Can’t lose the house because of it while you are alive. With home values falling I wonder how many lenders really want to get involved with them however. Not a big fan of those people that seem to indicate mom and pop should live in poverty with Medicaid just so kids can inherit a house. Most lenders (including Fed backed)have a requirement that both spouses be over 65. Under Texas constitution/law only one has to be over 65 (lender can still require both over 65). So in Texas you could at least technically have a reverse mortgage with one spouse being 90 and the other 18. Could be a long time before lender collects.
Not sure on that. It would seem if the borrower had to be over 64 and died, the debt would be due. I can’t see a loan contract with a 70 year payback.
Your post indicates a common problem with Reverse Mortgages. That being...you are long on opinions and short on knowledge. All persons on a RM must be at least 62 and BTW I'm in Texas.
It’s a bad idea because interest rates with a reverse mortgage are about 2 points higher. With a conventional mortgage you will have just as much cash or more even including payments and you maintain total control over your property.
AARP and Countrywide love it. That alone raises questions for me.
Lots of up front fees like an annuity, thus if the old folks move or die soon, these up-front costs / commissions are wasted.
If the folks leave the home soon, there may be other less expensive options to consider, such as home equity loans.
Tough to leave the home to your children, because in many cases, the home is sold to pay back a reverse mortgage.
Many old people will not get detailed financial / legal advice. The folks may not understand what they are signing.
After the homeowner moves out of the home for whatever reason the borrower or the estate usually has a year in which to sell the home. Most loans are gov't insured and provide that the homeowner or the estate can never owe more than the home is worth.
IMO the loan contract would call the loan when the elderly person died and not wait until the younger one dies.
LOLOLOL!!!
My bad on the 65. It is 62. I am right on the only one spouse being over 62 (not 65). Go read the Texas Constitution.
You highlight some of the more common misconceptions about RM's. A Reverse Mortgage is probably not a good idea for someone who just needs it for the short term. That being said it is the only option for many because there is no credit requirements. Home equity loans also must have a payment plan...RM's do not. Old people may not get detailed legal advice...the ones I have done business with are savvy. As for AARP liking them...to the best of my knowledge they just state the facts.
If the borrowers receive Medicaid or other public benefits, loan advances may be counted as liquid assets .
The borrower could then lose eligibility if their total liquid assets are too high.
Why is it I would need to read the Texas Constitution?
That is a highly unlikely circumstance for a RM recipient. BTW if my aunt had gonads she would be my uncle...about the same likelihood as losing medicaid through a RM
There are many benefits and risks to reverse mortgages aka an annuity. Even more than what have been mentioned so far.
Many old people can easily be tricked by clever, fast talking...salesmen.
Some salesmen also kill their sales thru tasteless humor.
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