Home Equity Loans vs. Reverse Mortgages

Are you 62 years or older and looking to tap into the equity in your home but are unsure if a reverse mortgage or a home equity loan is the way to go? There are big differences between a reverse mortgage and a home equity loan.

Home equity loans or a home equity line of credit are considered a second mortgage on your home. To qualify for a home equity loan or line of credit, you have to have enough income to pay back the loan on your mortgaged home.

In addition, there are debt to income ratios that banks consider when giving you a home equity loan or home equity line of credit (HELOC). Not to mention, a HELOC is a variable rate line of credit, meaning the interest rate you pay isn’t a set rate and can go up. Home equity loan rates are also a lot higher than mortgage rates these days so you will be paying more interest than with a traditional mortgage.

A reverse mortgage is different from a loan or line of credit. The difference is that a reverse mortgage pays you, the mortgagee. The amount of money you can borrow depends on the equity in your home, your age, the prevailing interest rate, and the appraised value of your home or Federal Housing Administration’s mortgage limits for your area, whichever is less.

You can use a reverse mortgage calculator to see how much you qualify for but the general rule of thumb is the more valuable your home is, the older you are, the lower the interest rate, the more you can borrow.

Reverse mortgages may be a great way to tap into the equity in your home. As long as the home is your principal residence, you don’t have to make payments on the money you receive with a reverse mortgage. Keep in mind that as with a regular mortgage, the loan becomes due in full when you move or sell the house.

Source

Lenihan urged to reverse rate rise

FINANCE Minister Brian Lenihan was under growing pressure last night to force Permanent TSB to reverse its decision to raise its mortgage interest rate by 0.5 per cent, a move which industry experts believe will almost certainly be followed by other lenders.

As public anger over the rate hike intensified, leading business and political figures called on Mr Lenihan to act swiftly to force Permanent TSB to reverse its decision, and to prevent other institutions supported by the taxpayer to the tune of billions from following its lead.

Leading the charge, aviation tycoon Ulick McEvaddy slammed the move by Permanent TSB. "It's counter-productive isn't it, really? Raising interest rates when the ECB bank in Europe is bringing them down? It's certainly not good for the economy," Mr McEvaddy said.

Asked what the potential fallout would be were Permanent TSB's move to be replicated by other Irish banks, he said: "The more we increase interest rates and the more impediments we have to borrowing, the worse it's going to get in the economy."

He added: "I think the whole idea was that we had to stabilise the banks, but that doesn't mean the banks are allowed to engage in profiteering. The banks should be lending, and lending for the essential requirements of small business."

In a direct challenge to Minister Lenihan, Mr McEvaddy dismissed his contention that he could not intervene to prevent Permanent TSB raising its interest rates.

"That's why he [Mr Lenihan] has a regulator there, you know. I mean this is the same regulator that stood idly by while banks were giving 100 percent mortgages. Now they should be giving 100 percent mortgages while the economy is stagnating. But they made a mess of it all because they allowed 100 percent mortgages when the market was overheated."

Disquiet over Permanent TSB's move to increase its interest rates was growing in Government circles too with Minister of State at the Department of the Taoiseach Dick Roche expressing his "disappointment" at the interest rate hike.

Newly-appointed Minister of State for Enterprise Dara Calleary, meanwhile, described the interest rise as "completely inappropriate".

"Permanent TSB has justified it on the basis of the cost of funds. But I would really question why they are going for such a big hike at a time when people are under so much pressure," said Mr Calleary. "There seems to be a certain disconnect between the upper echelons in the banks and the real world." Mr Calleary added there appeared to be no mechanism to prevent the hike going ahead.

But Fianna Fail TD, and Chairman of the Oireachtas committee on Economic and Regulatory Affairs, Michael Moynihan, called on the minister to act.

"Something has to be done. The banks have been abusing their powers for some time," he said. "I understand the difficulties the minister is facing but he has to look at this very closely. He has to be fair to the taxpayer," Mr Moynihan added.

As fears grew last night that other financial institutions would follow Permanent TSB's lead, Bank of Ireland Chief Executive Richie Boucher pointedly refused to rule such a move out.

Speaking to the Sunday Independent, Mr Boucher said simply: "We are just constantly reviewing all our products and we're not going to comment any further than that."

A spokeswoman for AIB Bank, meanwhile, told the Sunday Independent: "Given the continuing high cost of funding we have to keep the rates under review."

Mr Lenihan has rejected a call from trade union boss Jack O'Connor of Siptu that the Government withdraw its guarantee on bank liabilities for any lender that raises rates.

"The proposal to withdraw the state guarantee from banks that increase their interest rate costs would mean even higher costs for mortgage holders. This illustrates the benefits of the state guarantee to mortgage customers. Permanent TSB are paying the State for the benefit of this guarantee," the minister said.

On a typical mortgage of €300,000, the 0.5 per cent increase will add an additional €70 a month to the borrower's current repayments.

Permanent TSB, a unit of Irish Life Permanent, said that the measure was required to support its business at a difficult time.

Source

How to borrow cash for that $75,000 kitchen you’ve always coveted

When it comes to financing your renovation, you have several options, some better than others. Your best bet is to sit down with your financial advisor and discuss which suits your individual situation, and how much you can reasonably afford to borrow.

Cash Great if you have it, especially for small projects. But if you have a substantial sum in a high-interest investment account or mutual fund, withdrawing it for a reno may not always be your best option: You should measure the loss in compound interest that the money would have earned in the savings account against the cost of an equivalent loan. In some cases, the loan might actually be cheaper, especially if it's secured.

Personal loan, line of credit Often have flexible repayment terms and fixed or variable interest rates. Loans are fixed for a set number of years with regular payments; PLCs have more flexible terms, allowing you to borrow up to a prearranged limit, paying all or a portion of the balance each month above a minimum (which is usually fairly small).

Secured line of credit, home equity loan Similar to loans and PLCs, but with lower interest rates, since your home is used as security or collateral. This can be an economical source of low-cost funds, but it's really a type of second mortgage, with all the drawbacks that entails - including the possibility of foreclosure if you default.

Mortgage refinancing Refinancing your existing mortgage allows you to spread out the payments over a much longer period of time, usually at a lower rate even than a secured PLC, and gives you access to as much as 80% of your home's appraised value. Costs may include legal and appraisal fees, and sometimes penalties, which you should weigh against the cost of other borrowing options. Another option is to allow extra funds for renovations when you take out a new mortgage, such as when you purchase a new home.

Reverse mortgage Financial advisors generally advise against these mortgages, as they are really nothing more than highly restrictive regular mortgages that you don't make payments on, so interest on them compounds unhindered - to the advantage of the lender. If you wish to borrow against the equity in your home, you're much better off with a new mortgage, home equity loan or secured line of credit.

Source

Michigan Home Equity Loan Rates Turns To Technology

Detroit, MI – Home owners who are looking for ways to save money will want to take note of this new resource. The Metro Detroit based http://www.getmelowrates.com/ has been established to help Michigan home owners get a lower mortgage during these rough economic times. The new website has launched in July 2009 and covers the following areas: low mortgage rate quotes, auto insurance, home owners insurance, reverse mortgages, and life insurance quote.



The site pulls in quotes from over 2,000 resources and delivers the most compatible ones for the online searcher. Get Me Low Rates.com comes to us at a great time in this rocky market. Last March, the Detroit Free Press announced that the residents of Michigan were leaving in massive numbers. Even though there is a serious population decrease Michigan has several great things going for it such as emerging markets. These include, the rising Film Industry, Alternative Energy and new manufacturing of green products.



Economists are hopeful that there will be a boom in the Michigan economy in the months to come. Those who are already living here in homes will want to take notice of this new online resource. Here they can apply for a second mortgage. For those who qualify, (age 60 or older) can apply for a reverse mortgage and have extra money to spend on essentials such as food, lights, and transportation.


“The site is designed to cover major areas of financial interest,” says Internet marketer Ted Cantu. “The recent need to refinance is something that is on everyone’s mind at the moment. GM and Ford have been in the news and the bailout situation has a lot of folks nervous. This site stands as a resource to Michigan home owners who find that they need to refinance and get a home equity loan. Right now, this is our chief concern. We want to make sure that enough Michigan home owners know about the many programs this state has to offer. Home equity loans can provide emergency funds in the same way that a reverse mortgage can.”


Source

Your money: Pensions, savings bonds, mortgages

With government playing a bigger role in the economy, it's hard to keep track of all the changes affecting our personal financial lives. The flagging economy has lead to a barrage of questions. Are public sector employee pensions safe? With inflation so low, do savings bonds make sense now? And what about reverse mortgages, are they a smart move now that new rules are in place? AP personal finance writers tackle those questions in this installment of "Your Money." If you have a question you want answered, e-mail it to yourmoney(at)ap.org.

___________

Q: When a pension goes bankrupt, I know there's a government guarantee on the obligations. How about when a government entity runs out of money, however, as my state and city are starting to do? If they can't fund their obligations, does someone else step in to pick up the check?

A: For public sector workers, there's no pension backstop comparable to the Pension Benefit Guaranty Corp., the federal agency that steps in when private plans can't meet obligations. Public pension sponsors — say, state or city governments — have contractual obligations to keep pensions fully funded.

That may be of little comfort when many local and state governments are stretched thin, such as California, which is struggling to close a $26 billion deficit. However, public pensions have a stellar record. Robert Klausner, a pension law attorney and counsel to the National Conference on Public Employee Retirement Systems, said he's unaware of any public pension failing to meet its obligations since the 1930s. In the case of Orange County, California's bankruptcy in 1994, retirees received full pension benefits throughout the financial crisis, Klausner said.

Public pensions have proved more durable than private plans in part because governments have the flexibility to make up for pension shortfalls by raising taxes — an option corporate pension sponsors lack. Klausner also said independent actuaries review the nation's 2,700 public pension plans to ensure they can meet obligations. In instances when a government failed to contribute enough to keep a pension fund healthy, legal challenges have succeeded in restoring full funding, Klausner said.

— Mark Jewell

___________

Q: Do savings bonds make more or less sense in an economy like this one, where interest rates and inflation are low? What about when inflation rises?

A: Savings bonds make sense for the investor who doesn't need much cash flow and wants safety. But they're not particularly attractive right now if you're looking to make a savvy investment for the long term.

A Series EE bond purchased between now and the end of October earns just 0.7 percent per year for as long as you hold it. The exception would be if you hold the bond for 20 years, in which case the value is guaranteed to double. In that instance you'd be assured a return of 3.5 percent. But if you're investing for that long a timeframe, you should probably aim higher.

You could also purchase Series I savings bonds, which have some inflation protection. But if you buy one now you'll earn nothing for inflation for as long as you hold the bond, due to the fact the inflation rate is currently below zero. This will be a better investment as inflation rises.

Depending on your time horizon, other alternatives to consider are high-yield savings accounts, CDs or Treasury Inflation Protected Securities (TIPS), advises Greg McBride of bankrate.com.

— Dave Carpenter

____________

Q: I understand there were some changes in the reverse mortgage program recently. What were they and who do they help?

A: As part of stimulus legislation signed by President Obama in February, the loan limit on reverse mortgages was temporarily raised to $625,500 from $417,000, subject to renewal by Congress at the end of the year. That helps senior homeowners (reverse mortgages are for homeowners age 62 and older) who have homes with higher values.

Under other changes in the past year, reverse mortgages can now be used on a condominium and, for the first time, to purchase a new home.

Eric Bachman, founder of Oakland, Calif.-based Golden Gateway Financial, says the changes make reverse mortgages even more compelling for older Americans interested in downsizing or moving to another location. It also means, he says, that seniors in financial distress or those simply planning ahead can put more of their home equity to work for them because of the higher loan limits.

Some other changes this year aren't perceived as so consumer-friendly.

Fannie Mae, the government-backed mortgage company, made changes in April that allow for higher margins for reverse mortgage lenders. Margins are the interest rate spreads a lender makes on the loan, so higher margins mean higher interest rates. Also, the margin can change from the time a borrower submits an application and the loan is funded, which can be up to 120 days.

— Dave Carpenter

Source

The New “R” Word: Reset

The New “R” Word: Reset

Over the past 18 months, we have been inundated with bleak tales of economic strife. Inevitably, the media has worn us all thin with their never-ending string of bad news. Yes, we are stuck in the thick of a very painful recession. Unemployment rates are flirting with double digits, fears of inflation are beginning to handcuff the government and their financial actions, political parties are torn and bulls are all but extinct on Wall Street. Instead of sitting on the sidelines and waiting for struggling newspapers to drop good news on our porch, I argue it is time for us to stop fearing our economy. I argue it is time for a reset.

After someone has a disease that is critical, but not terminal, they take a reset of their life and gauge what they have to work with. Although this would classify as more of an emotional reset, the same principle can be applied to our current financial struggles in terms of an economic reset. This is where we are right now, both here in the United States and in many parts of the world. Prices have reset. The sooner we realize this and the sooner we gauge what we have to move forward with, the faster we will regain the confidence our capital needs to move forward.

Our economy will recover, but it will not sporadically jump to pre-recessionary levels. Our core growth will be more conservative. Cheap credit will become a thing of the past. The availability of extreme financial leverage will be nonexistent. Instead of returning to business as usual, we will work to create a new world. One with regulations that help our economy, not inhibit it. We will all return to spending, but accountability will be involved. We will assess what tools we have and what tools we need. At that time, we will be able to help our economy grow responsibly. It is not something to fear, but something to embrace. And there is no time better than now to begin.

Much more on resetting our economy in future Powell Perspectives.

Start Your Own Business, Just Don’t Expect to Buy a House

Unable to find steady employment, many Americans are starting their own businesses out of necessity. Small businesses help create new jobs. Nationally, small businesses comprise half of all private-sector employment and they have created about 70 percent of new jobs each year over the last 10 years. Simply put, entrepreneurs drive our economy. But, when it comes to acquiring a home loan, self-employed business owners might as well be lepers.

The qualifications for obtaining a home loan through the Federal Housing Administration (FHA) require that self-employed borrowers have two years of self-employment experience in the same field. However, if a small-business owner has been self-employed for more than two years, then lenders need to see a consistent increase in the business owner’s earnings. If the borrower has been self-employed for less than two years, then past W-2 information is often considered irrelevant unless they still hold their W-2 job. And, since underwriters rely on tax returns as proof of a borrower’s income, year-to-date income is worthless until it is filed with the IRS. Many times, the self-employed borrower is out of luck, especially when banks are tight with lending.

Banks view the self employed as “risky” because their job security is wobbly and their incomes can vary widely from month to month. Because of this unfavorable view, self-employed persons are forced to explore other non-traditional options to purchase a home. The most-feasible of these options include owner financing and lease-to-own properties.

Looking for a faster sale or attempting to move a property that is otherwise difficult to sell, owners will sometimes offer financing themselves. Owner financing can help keep the banks out of the picture and get self-employed individuals on their way to home ownership more swiftly. While owner financing may offer easier qualification requirements and less paperwork, it is crucial to not get swept away in a sour deal. Having a real-estate attorney help to complete the transaction is crucial and will keep both parties informed about the details of the deal.

Another option for self-employed individuals is to find a lease-to-own property. With a lack of buyers, many condo complexes are offering lease-to-own options on their units. After the renter has agreed on a purchase price with the seller, the renter is allowed to move into the property and make monthly rent payments to the owner. This option allows the renter to build equity every time they pay their monthly rent. At the end of the lease, the renter can apply the funds that have accrued toward the purchase price of the property. Plus, by that time, the self-employed renter has had time to acquire the two years of tax returns needed to acquire a conventional loan.

Patience is often the best tool for someone who is self employed and looking to obtain a home loan. Although they may miss out on timely investment opportunities, a self-employed individual can use their waiting time to explore their home-buying options. This way, they will be well-versed in the home-buying process by the time they meet the requirements set forth by loan underwriters.

The way the system is set up, it makes more sense to be a W-2 employee for a number of years, then purchase a house and then risk it all to start your own business. But, entrepreneurs are a spontaneous and confident bunch. They do not always fit into the confines of structured systems. Therefore, we will continue to allow them to fuel the driving force behind our economy, we just will not help them purchase a place to live.

Mortgage Fraud Burns

Last week, the FBI released its 2008 Mortgage Fraud Report. The aim of the study was to provide insight into mortgage fraud crimes perpetrated during 2008. The Mortgage Fraud Report addressed “current mortgage fraud projections, issues, and the identification of mortgage fraud hot spots.”[i] Not to anyone’s surprise, the report suggested that mortgage fraud continued to be an elevating problem throughout 2008. Practically all of the findings indicated an increase in mortgage-fraud activities.

Although a single, precise instrument to determine mortgage fraud does not exist, there appears to be a positive correlation between mortgage-fraud activity and distressed real-estate markets. Therefore, mortgage fraud thrived in the stumbling housing market of 2008. According to the report, mortgage fraud is defined as “a material misstatement, misrepresentation, or omissions relied upon by an underwriter or lender to fund, purchase, or insure a loan.”[ii] Suspicious-activity reports (SARs), which are one of the government’s main weapons against financial crimes, increased 36 percent to 63,713 during the 2008 fiscal year, up from 46,717 in 2007.

Among the most popular mortgage-fraud scams are deceitful short sales, unnecessary bankruptcy filings, reverse-mortgage schemes and unlawful loan modifications. According to the FBI’s website, mortgage fraud is categorized under two main labels: fraud for profit and fraud for housing. Fraud for housing is typified by a borrower who provides false information in order to qualify for a loan. As long as borrowers are clear and honest throughout the loan acquisition process, they should have no worries of being a victim of fraud for housing. However, the FBI cautions borrowers of deceitful professionals who try to coerce them into reporting false information on their documentation. Even though you may be following the advice of a “professional,” you could still be held accountable for the crime.

The second category of mortgage fraud, fraud for profit, is committed by industry insiders who take advantage of borrowers for their own financial gain. Fraud-for-profit schemes include motives to revolve equity, falsely inflate property values or issue loans based on fictitious properties. Existing investigations suggest that “80 percent of all reported fraud losses involve collaboration or collusion by industry insiders.”[iii]

In order to avoid becoming a victim of a fraud-for-profit scheme, the FBI offers the following tips:

* Choose your mortgage broker/banker carefully

* Arm yourself with basic mortgage knowledge

* If something is too good to be true, it probably is

* Never sign a blank document or a document containing blank lines

* Never sign over the house deed “temporarily” for a fee to anyone

Source

Michigan Low Mortgage Rate Online Hubs Spreads Information

Detroit, Michigan – Home owners can breathe a sigh of relief thanks to some new online tools to help them locate lower mortgage rates. There are three new up to the minute online news hubs that deliver some real value to Michigan home owners. Now they can keep up with the latest news from Oakland county when it comes to refinancing their homes, getting a new mortgage quote, reverse mortgage questions, and even how to save on auto insurance.



The online news hubs were the creation of Ted Cantu, (I Cantu Media LTD) and is an extension of the popular Michigan based mortgage website, http://www.getmelowrates.com/. These sites feature videos from the Bloomberg network, CNN, and news items from popular blogs and promotional clips from Get Me Low Rates. The network hub is something that Cantu and Co. have been doing for a while. The magic ingredient is working with a strong level of RSS feeds.



“Living in Michigan during these changing times has been challenging to say the least. These tools are designed to make the online user more comfortable. They deliver some incredible resources that may otherwise go somewhat unnoticed.” says online innovator, Ted Cantu.

Michigan home owners can now access straight forward information on how to work with property lenders, bank institutions and mortgage specialists. They will have access to up to the minute news on getting low mortgage rates in Michigan.

“The beautiful thing about working with this technology is that these hubs will change information on a daily basis. We suggest that the user bookmarks them in their web browser. Fresh news gets pumped in daily keeping the reader clued in on what’s happening around them. It is a great way to understand the economic climate of Michigan.”

You can access the three hubs here:
http://hubpages.com/hub/Michigan-Low-Mortgage-Rates



http://www.squidoo.com/low_equity_home_loans_michigan


“We will be adding more of these Michigan mortgage hubs over the next 2 weeks. Eventually our goal is to create an online resource library for online searchers. This is a very innovative project and it is designed to help many Metro Detroiters” adds Cantu.

For additional information regarding Get Me Low Rates and Ted Cantu you can contact them at 248.631.9211. You can also visit their website at http://www.hotmetrofinds.com.

Source

Look and learn

Everybody says you should “shop around” for a mortgage loan, but here’s my problem: What the heck are they? I like to visualize the stuff I’m going to buy and when I try to visualize the acquisition of a mortgage the only image that comes to mind is a guy stooping over while an enormous weight is loaded onto his shoulders. I don’t see a house. I don’t see a fence or a rose garden or a coffee pot or a grandfather clock. I just see a guy shouldering a massive burden in tenuous times, and why would I want to shop for something like that?

But I have to admit that, for me, the burden really isn’t the mortgage loan; the burden is my relative ignorance about mortgage loans. And ignorance, in my experience, is not bliss. Rather, it’s the well-seeded breeding ground for anxiety and defeat. So I told myself that this week I should seek the opposite of ignorance (which I guess is enlightenment) and instead of feeling anxious and defeated, I would feel the opposite: confident and triumphant. And it kind of worked.

I started my journey toward enlightenment by typing these words into my Google bar: “What is a mortgage?” And you can’t believe the response I got. I stared at my computer screen as the resources rolled in. It was like peering into a whirling galaxy of information. I tried not to panic, took a deep breath and entered a Web site about terminology, seeking a simple definition.

Here’s where things get a little tricky. To begin with, the word mortgage is both a noun and a verb. A mortgage is “a conditional conveyance of property as security for the repayment of a loan,” according to the Princeton Web site, wordnet.com. It’s also, according to the same source, something “to put up as security or collateral.” None of these words made a lot of sense to me the way they’re strung together by the Princetonians, so I poked around for a more rudimentary definition. One dictionary described a mortgage as a “type of loan used to secure property.” I could live with that.

Unfortunately Google also offered me about 20 related phrases to research, all of which had the word mortgage in them. Like adjustable-rate mortgage, fixed-rate mortgage, reverse mortgage, wraparound mortgage, mortgage liens, mortgage insurance…And I could look up these terms, not only in English, but in Chinese, Spanish, German, French, Italian, Russian or ALL LANGUAGES. Can you imagine the cacophony of that last one? I didn’t click on that because I thought my computer might explode. I also didn’t click on “Jumbo Mortgage,” because that just sounds like a death wish. I’d prefer a teeny-tiny-baby mortgage actually.

I did want to know more about “mortgage rates.” That’s a good one — everybody’s always asking about “mortgage rates.” That particular term refers to the interest rate that you pay on the money that you’re borrowing. As of the July Fourth weekend, California interest rates for a home mortgage were hovering around 5.31 percent on a 30-year, fixed-rate loan.

Speaking of our nation’s birthday, I have to say that government Web sites about home loans are remarkably lame. Here’s a typical entry from the Federal Reserve Board’s Web site: “You’ve been looking at houses for months and months, and you have finally found it — the house that’s just right! Now, you’re anxious to buy your new home, move in, and get settled. But you still have an important task ahead of you — getting a mortgage loan.”

Independent sites are better — even the really generic ones, like About.com, and the really huge real estate sites, like Zillow.com and Trulia.com. The best resources, though, are local and personal. By personal I mean breathing, as in on the phone or sitting across from you, or driving you around town to look at houses. Most real estate agents can recommend reliable, real-life lenders and brokers who can explain the local particulars of the real estate market. You should shop among these lenders (banks and private companies mostly) for a mortgage and for knowledge. Maybe it’s not as easy as shopping for shoes at Macy’s, but the more you look the more you learn.

Source

GERRY KRAMER: Reverse mortgages have appeal for seniors

Depressed home prices, low mortgage interest rates and an $8,000 tax credit for new home purchases have done little to spur the housing market. The glut of homes for sale, stricter terms to qualify for a mortgage and a cautious attitude toward committing to higher expenses in a continuing recession have acted as offsets to the incentives. Yet one area of strength in the mortgage market is that for reverse mortgages. Because there is a minimum age requirement of 62 to qualify for this product, its appeal is only to seniors.

A reverse mortgage simply allows the owner of an existing home that has equity (value above what is owed on any existing mortgage) to borrow against that value. This is not an equity line of credit. That product is in short supply these days, down some 70 percent from last year. In a reverse mortgage, the lender takes “effective” ownership of the home so that when the owner dies or sells the house the loan is automatically repaid from the proceeds of the sale. For this, the owner gets cash up front or a line of credit.

For example, suppose a home has no mortgage on it and is worth $200,000. A reverse mortgage can provide the home owner with up to $160,000 in cash or credit line.. This represents 80 percent of the equity value, generally the limit banks will accept. The actual amount provided will be less, however, because of interest charges over the loan’s life added to the principal amount owed so that the total continues below the 80 percent upper limit.

But that’s not all. The lender will charge a fee for the reverse mortgage in addition to interest. Fees can run as much as 10 percent of the home’s value, reducing further the actual amount of cash or line of credit. Also, falling home prices can make the home value appraisal difficult.

Still, a reverse mortgage can make sense for the retired individual with little or no savings other than the value of the home, especially in a market where selling to maximize cash value is a slow process. Just make sure all the costs, fees and obligations are understood.

Source

The Pros and Cons of Reverse Mortgages

While the recession hasn't spared any age group, it's been particularly brutal for older Americans who were counting on their (now shrunken) nest eggs to last through their retirement years. To supplement their stash, an increasing number of seniors are turning to reverse mortgages, which function essentially as a cash advance on their home equity, repaid only when they sell their home or die. The loans are available to those 62 and over, and lenders have to eat the difference if a home ends up declining in value. In the three months after February--when a provision in the economic-stimulus package raised the eligible home-value limit from $417,000 to $625,500--the number of federally insured reverse-mortgage originations jumped 10% compared with the same period last year. Industry experts predict that reverse mortgages will play an increasingly important role in the coming years as some 70 million baby boomers hit their 60s--often with a lot less saved than they'd hoped.

This has some folks in Washington concerned. In June, the Government Accountability Office said it had uncovered misleading marketing practices in the reverse-mortgage industry, and Missouri Senator Claire McCaskill, a longtime consumer advocate, chaired a hearing to investigate predatory lending tactics. A big no-no is cross-selling, e.g., trying to persuade a senior to get a reverse mortgage and use the funds to buy an annuity or other financial product.

Comptroller of the Currency John Dugan recently noted that reverse mortgages, like some flavors of the infamous subprime mortgages, are too complex for many seniors to understand. "Millions of older Americans still have a lot of equity in their homes, and it's tempting for them to tap into this pot of money," he says.

Still, under the right conditions, these loans can be a sensible solution to a tough financial situation. So if you or your parents are considering one, here's what you need to know:

The amount you can borrow is based on interest rates, your age and the value of your home. (Use the calculator at rmaarp.com for an estimate.) There are no credit or income requirements to get a reverse mortgage, but you must be able to keep up with property taxes and insurance bills--or you could lose your home. The up-front costs are high. Generally, $10,000 to $15,000 in fees are lopped off the amount you can borrow. Finally, if someone is pressuring you to take one of these loans in order to buy something else, that's a huge red flag. Walk away.

Lenders aren't allowed to close on a federally insured reverse mortgage until borrowers meet with a HUD-approved counselor, who is required to help them explore alternatives such as selling their home or lowering their expenses. That's because the greatest reverse-mortgage risk, especially for younger borrowers, may be that they will live longer than they expected and drain all the available equity from their home. Says reverse-mortgage specialist Bronwyn Belling: "If you borrow the money now, you may not have it when you need it later on."

Source

Making Cents: Reverse mortgages gain favor

Once considered a desperate move by cash-strapped retirees, reverse mortgages are entering the mainstream as a tool for retirement income planning. These types of loans are highly regulated, and each customer must attend a counseling session from a HUD-approved agency.

Unlike a traditional mortgage, there are no income, credit or employment requirements to qualify for a reverse mortgage. To qualify, borrowers must be at least 62 and own and live in the home as their principal residence. The owner must own the home without a current mortgage or have a current loan with a balance that is less than 65 percent of the home's value.

Congress just raised the limits on reverse mortgages to $625,500, up from $417,000. The actual amount that you may receive is based on your age, the value of the home and the current interest rate environment.

Proceeds from the reverse mortgage can be received as a lump sum, equal monthly payments for a specified time period, or as a line of credit to draw down whenever you want.

The proceeds are received income-tax-free and do not count as income for Social Security qualification or taxation purposes. Even if you take a lump sum, there are never any payments to make on the loan.

The borrower retains both title and control of the property as long as it remains as your primary residence, the taxes and bills are paid and the home is maintained to Federal Housing Authority standards. For couples, at least one of the married couple must remain in the home. Any remaining home equity is available for the owners or their heirs.

These loans can be used to eradicate existing mortgage payments, to pay for needed home repairs, pay down credit card or other high-rate revolving debt or to supplement daily living or health care expenses. With many a retirement portfolio devastated in the market collapse of the past year and the current very low interest rates available on savings, this method of improving retirement cash flow is beginning to pick up steam.

The downsides to a reverse mortgage include fees. Fees for a reverse mortgage are considerably higher than those for a traditional loan. Another potential downside comes to those who take their proceeds up front. These borrowers may subject the newly borrowed cash to investment risk or otherwise earn less in interest than the cost of the loan. Also, having that large cash balance on hand may affect eligibility for other forms of aid, such as Medicaid.

Source

Reverse Mortgages - Think Carefully

The family home remains the single most important asset for many of our over-55s. The problem is that our homes lock up large amounts of capital, money that would be very handy in retirement. Reverse mortgages let seniors unlock this home equity without the need to sell up or move out of a much-loved property though the extra cash can come with a mounting interest bill.

The idea behind reverse mortgages is that older homeowners can cash out part of their home's value, with the funds received either as a lump sum, a series of cash payments or a combination of both. The money can be spent however the homeowner chooses be it to buy a new car, take a holiday or simply meet living expenses.

Not all lenders offer reverse mortgages. Among the list of current providers are St George and BankSA, the Commonwealth Bank, Newcastle Permanent and Suncorp. Interest rates vary widely and do tend to be higher than for standard home loans. At present you can expect to pay anywhere between 6.4% and 9.5% depending on the lender and loan.

A strong point of appeal with reverse mortgages is that no repayments are required until you sell the property or die. However interest is charged from day one so it doesn't take very long for the overall debt to escalate, potentially outpacing the increase in your home's value.

To see just how quickly the debt can snowball, let's say that a retiree aged 65 takes out a reverse mortgage, receiving an initial lump sum of $50,000 at the start of the loan, with a further $500 per month paid for the first five years. By the time the homeowner is in his or her mid-80s, the debt plus interest will have grown to $400,000.

The mounting debt may alarm our hypothetical retiree's family members, who are likely to be left a smaller estate. But it should also be a concern to our homeowner.

That's because around 50% of both men and women currently aged 65 have a 50 per cent chance of living to their mid-80s. So if our senior has depleted $400,000 in home equity by this stage, what will he or she live on for their remaining years? It's a serious issue if nursing home accommodation is required at a later stage as this can bring significant funding costs.

To help seniors understand exactly how a reverse mortgages works, investment regulator ASIC has produced the booklet "Thinking of using the equity in your home?" It's a comprehensive guide for seniors, with some input from yours truly. Download a copy from ASIC's consumer website FIDO (www.fido.gov.au) or ASIC on 1300 300 630.

Source

Buying an investment property? Some loan tips…

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

Ken from Newport asks:
Q. I currently rent in Orange County, and do not plan to buy here in the immediate future, because I believe prices in the areas I am considering are likely to continue to fall. However, I am considering buying investment property out of the area. My question is if I buy one or two properties as investments (taking mortgages), how will that impact my ability to borrow to buy my primary residence down the road? I understand that having multiple mortgages can negatively impact one’s ability to borrow for an additional property. Also, would that eventual O.C. purchase still get the benefit (lower rates, down payment requirements) of a primary residence, or would the rentals prevent that?

A. I am glad that you are seeing opportunity in the investment side and yours are good questions. You will not be penalized for having investment property. You will get a good rate with no change in down payment requirement.

But the lender will factor in the financial effect of those properties. Here’s how our industry looks at it. We use a formula to calculate the impact of the property on you.

Take the rental income, say $1,000 per month, and multiply by .75 to account for vacancy, management, and repairs. You get $750. From that deduct the mortgage payment and the monthly property tax and insurance. If that total is $700, you made a $50 per month profit and it is added to your income. If the total expenses are $950, you are losing $200 per month and that is treated as a permanent obligation, just like a $200 car payment, and added to your debt for qualifying purposes. When you get loans on your investment properties, run the numbers and then pretend you are buying a home here also to assess the impact.

Note also that non-owner occupied loans are the same rate as owner-occupied but they carry a 1.5-point add-on to the fee up to 75% loan-to-value, and a 3-point add on from 75% to 80% LTV. So plan on putting 25% down. Good luck.

Ben in Costa Mesa asks:
Q. I am 85 years old. My spouse is 80. Our home is paid for and I am thinking of obtaining a reverse mortgage for the maximum allowed, which I believe is $300,000? My home currently is probably appraised at $800,000 (was around $1,100,000 last year). I want to do some remodeling, maybe help two of our children buy a home in this down market and have a little fun with a few extra bucks in our pocket. Any reason not to get a reverse mortgage? What should I look out for?

A. First, congratulations on making it to 85. It sounds as if you are a good candidate for a reverse mortgage. The only thing to note is that they are expensive, especially with up-front fees. There is a lot of information about these products at www.reverse.org. AARP’s Web site also has a lot of information on reverse mortgages.

Finally, reverse mortgages are available through specialized channels, not like regular loans. I hope you find a lot of things to have fun doing with the extra bucks. You’ve earned it.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question.

Johnson will answer up to three questions each week, so keep checking back for a response. If many questions are submitted, it could take a while to get a response, or he may never get to it. Also, readers keep submitting variations on the same question, which has already been answered: what to do when you can no longer afford your mortgage. I have decided not to publish most of those questions, because they are repetitive, although I appreciate the difficult situation many homeowners are in these days.

Source

Seniors seek relief in home equity

SALISBURY -- More than 70 million people in the United States turn 62 over the next five years -- a market of baby boomers becoming eligible for a housing loan program that puts instant cash in the hands of elderly homeowners who borrow against the equity in their home, and don't have to repay the loan right away.

The reverse mortgage program has been around for years, but the recession and flood of boomers are drawing new attention among cautious regulators who worry borrowers could get in over their heads and aging homeowners jump at the chance for money they can delay repayment.

The federally guaranteed home equity conversion mortgage, or HECM, requires no credit score or income level, extending an opportunity for a reverse mortgage line of credit to aging borrowers who wouldn't qualify for a home equity loan, says Chuck Morse, a reverse mortgage consultant at MetLife. The borrower doesn't repay the loan as long as they live in and maintains the home.

A relatively new federal guideline that allows qualifying borrowers to use reverse mortgages toward the purchase of a principal home -- an option known as reverse purchase -- also spawns new interest, Morse said.

Rules are complicated, and sometimes incomprehensible, especially for the elderly, regulators say. By 2008, the program had grown more than 14 times in seven years, to 112,148 loans endorsed by the Federal Housing Association, from 7,757 in 2001.

"It's not just for people who are desperate; it's for people who want to make a good business decision," Morse said. "The baby boomer generation is starting to come of the age to qualify. They're like a pig going down a snake's belly; they're coming down the forefront now."

Counseling is available to educate and protect borrowers, and required for borrowers who take loans on their home equity in a lump sum, he also said. Among expert counseling services on the Eastern Shore are Neighborhood Housing Services and MAC Inc., both in Salisbury.
More money

MetLife and Bank of America are among industry leaders with reverse mortgages, said Morse, who says he also educated clients on the cash-for-equity program at Bank of America. "You don't sell reverse mortgages; rather, you educate people on the product," Morse said.

The federal stimulus package adds funds that raise the maximum claim amount, which sets the maximum reverse mortgage loan on home values in a region. In Wicomico County, for instance, the maximum claim amount for a home was about $250,000.

With stimulus money fueling the pot, it's now up to $625,500 in the county and nationwide -- theoretically giving a homeowner has more equity to borrow more. "On the Eastern Shore, (the maximum claim amount) has more than doubled," Morse observes.

According to HousingWire.com, a special senate committee on aging heard testimony last week on the benefits and drawbacks of reverse mortgage products available to seniors.

In Kansas City last week, Missouri Sen. Claire McCaskill expressed concern about fees associated with reverse mortgages, saying they can be excessive, reported the Kansas City Star. She also said that agents for lending companies marketing the products could be overly aggressive.

Mathew Scire, director of the Government Accountability Office's financial markets and community investment team, has testified that reverse mortgages are complex and costly for vulnerable market of homeowners. He points to literature presented by a company on reverse mortgages, calling a phrase that promises a "lifetime income" potentially misleading.

According to the Reverse Mortgage Lenders Association, the cost for required counseling is estimated at between $16 million and $18 million this year, although Congress allocated $8 million. Underfunding could mean a shortage in the number of counselors as the number of borrowers grows, according to association president, Peter Bell.
Heirs

He added, though, that a poll of state's attorneys, bank regulators and the Federal Trade Commission found few complaints, and that safeguards are in place to prevent fraud.

The beauty of the program is that borrowers don't have to repay the loan as long as they live in the home and pay property taxes and maintain upkeep, said Morse, who lives in Easton. "If the borrower moves to nursing home permanently, the note's due," he said.

Oftentimes, children of homeowners are upset to learn their parent borrowed on the equity of a home, Morse said. "The money has to be paid back at the end," he said. "Then the children get upset; they see their parents spending their inheritance."

Morse said while closing costs on a reverse mortgage "are fairly expensive," the program could be a good fit for some. Maximum loans typically equal about two-thirds of a home's equity, Morse said. Both fixed and variable rates are available on loans that are formulated by the age of the borrower and property value, he said.

"The key is to help seniors to age in place," Morse said.

Source

Reverse mortgage can help seniors buy new home

Americans have learned a tough lesson: Your home is not your piggy bank. However, there is a reward for those who did build equity in their homes: In their senior years, their home can provide a monthly stream of tax-free income, or a lump sum of cash to spend as they wish, while remaining safely in their home. Or it can provide a source of financing for a new, smaller home.

It's all done through a reverse mortgage.

For many seniors, a reverse mortgage is the answer to a prayer. It allows you to withdraw money from your home equity, tax free, with no requirement that it be repaid until you die or move out of the home. There is no way you can be forced out of your home as long as you keep paying your property taxes and insurance and maintain the property.


What you need to know about reverse mortgage for buyers, sellers
• Reverse mortgages are mostly viewed as a way to allow seniors to stay in the homes they love but can no longer afford. That monthly reverse-mortgage check can make all the difference when it comes to covering costs. But a reverse mortgage can also help seniors buy a new home.

• These days, many seniors are having trouble selling their current home and downsizing to a smaller home. And others, just entering retirement, are having difficulty financing the purchase of a new home, since they no longer have an income and don't want to put all of their savings into the purchase.

Here's where a reverse mortgage can help both buyers and sellers.

• Just go to www.Reverse Mortgage.org and use the calculator there to see the dollar amount of reverse mortgage you would qualify for, based on your age.

• For example, a 65-year-old could likely get about $240,000 on a reverse mortgage on a $500,000 home. That means a senior who wants to buy your existing $500,000 house needs to come up with only $260,000.

• The reverse mortgage would provide roughly $240,000 of the purchase price, with no monthly payments required. Now your old, larger home becomes more salable to someone with cash from the sale of an existing home.

• And once your home is sold, you can take part of the $500,000 sale proceeds, and use it -- along with some of your cash and your own reverse mortgage -- to buy your next, smaller retirement home. So, if you're age 75, and want to purchase a $350,000 condo, you could likely get a $230,000 reverse mortgage on that smaller condo. That means you'll have to put down only $120,000 in cash on your new condo, and you can put the remaining $380,000 from your home sale in the bank (or several banks).

Using a reverse mortgage to buy a home opens an entirely new dimension to this fascinating product.

Source

Fox: Re-evaluate your home and its place in your retirement

During the early part of this decade, Americans used their home equity in ways that went largely unexplored by previous generations. As real estate values soared, so did the ability to tap a home’s value to pay for college educations, cars, furniture and even things like vacations and cell phones. No longer was a house primarily a home; rather, many saw their houses as ATMs.

That view, and how a home’s value should play into one’s retirement plans, has changed again with the painful retribution delivered by the housing meltdown.

The recessionary environment has forced those who included their home values in their retirement calculations to re-evaluate their position. Below are two options to help investors whose retirement consists largely of their home’s equity enter their retirement years with peace of mind and increased investment security.

The first logical choice for any investor is to downsize. Downsizing offers the financial benefit of having a lower monthly mortgage payment, resulting in increased cash flow, reduced maintenance costs and lower utility bills. Downsizing could also lower your real estate taxes due to a lower estimation on a smaller home. Also, be sure to evaluate the effect of a new home versus an older one due to a potentially much lower tax base under Proposition 13.

For those investors who have paid off their current homes, one of the largest benefits of downsizing stems from the possibility of purchasing new homes for below their value in the current market and having the ability to wait out the market and sell their current homes when prices are back up.

Homeowners also can consider a reverse mortgage. On a typical mortgage, an investor makes payments to a lender; however, in the case of a reverse mortgage, the lender makes payments to the homeowners. These payments do not have to be paid back while the owners live in the home.

The best aspects of a reverse mortgage are that they are not taxable, do not affect Social Security or Medicare benefits, have no income restrictions and the homeowner retains the title of the home and does not have to make monthly repayments. Before taking on a reverse mortgage, investors should be sure to research specific loan requirements, interest rates and monthly payments versus the amount of cash flow they actually need.

For the majority of investors looking for answers on how to best use their home equity in retirement, the above tips can be a great starting point. Investors must remember that before making any large purchase or loan decisions, they need to do research and consult with a financial expert to decide which options work best for their specific situation.

Source

2009 Reverse Mortgage Changes

Fort Worth, TX - June 26, 2009 - (RealEstateRama) — It is important for you as a potential reverse mortgage participant or as a current reverse mortgage customer to stay abreast of the changes happening in this particular industry. The changes in 2009 for the Home Equity Conversion Mortgage (HECM) or reverse mortgage program have been the most since its inception more than 20 years ago. The new changes of the reverse mortgage program has proven to be of value to mature Americans, like you, who are over the age of 62 and want to remain in their home while using its equity to supplement their income.

The pertinent changes to the reverse mortgage program include:

* New program offerings. There have been two new programs within the reverse mortgage structure, which includes fixed interest reverse mortgage rates and HECM for Purchase. If you prefer a fixed interest rate reverse mortgage you should understand there are no flexible payment options. You are only allowed to receive a lump sum payment at closing. The fixed interest rate reverse mortgage program does, however, give you a peace of mind when preparing for estate planning. The HECM for Purchase program allows you to purchase a new home. Unfortunately, this program has some clarifications which need to be cleared before all states, like Texas, adopt and mandate this program.

* Payment flexibility. With an adjustable interest rate reverse mortgage you are allowed to have your choice of different payment forms. Remember the purpose of the reverse mortgage program is to allow you to use the equity in your home to supplement your income so you design your payment options. You can chose from a time limit or tenured monthly payment option; a lump sum payment; an equitable line of credit or a combination of all three payment types. The choice is yours as well is the right to do with the money as you please. It is important to note that a fixed interest rate reverse mortgage only has a lump sum payment option.

* Increased loan limits. President Obama increased your ability to draw more equity from your home by increasing the reverse mortgage loan limit to $625,500 until the end of 2009. Again this gives you more equity to draw on which is favorable in a housing market which is failing. The previous limit was $417,000 and may return in 2010

* Protection you desire. Now your rights and property are protected by the new code of ethics and enforcements issued by HUD and FHA. These measures are to ensure the elimination of non HUD approved lenders who have participated in the origination of HECM products. These new measures also ensure your full understanding of the reverse mortgage programs by requiring you to participate in a counseling session with a HUD approved counselor.

* Rising margins and CMT eliminated. If you are familiar with rising margins in the mortgage industry then you understand that the margins are the points (for fee collection) a lender can receive for any given loan. In the reverse mortgage industry the fee increase was based upon the CMT index which significantly increases margins and interest rates and made receiving a reverse mortgage unbearable for some borrowers. Fannie Mae has eliminated the use of the CMT and based the rising margins on the Libor, London’s interest rate index. This change is to spark interest from outside investors in reverse mortgages.

Staying informed is not an option when your future and well-being are at stake. The changes to the reverse mortgage could negatively or positively impact your decision to participate in the program. Whatever choice you make you must understand the program fully.

A thirteen-year veteran of the mortgage industry, Robert Griffin specializes in reverse mortgages and has earned the accolade of No. 1 reverse mortgage broker in the Southwest for three years in a row. The owner of Griffin Financial Mortgage LLC, based in Fort Worth, Texas, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB). Robert Griffin is also co-author of “62 Senior Moments.” If you would like an information packet or would like to set up an appointment with one of our Reverse Mortgage Specialists, Please call (866) 683-3690 or complete our online Reverse Mortgage Information

Source

McCaskill holds hearing in St. Louis suburb on reverse mortgages

UNIVERSITY CITY, Mo. | Reverse mortgages, increasingly used by seniors to help fund retirement or pay unexpected medical bills, are often accompanied by excessive fees and marketed using overly aggressive tactics, Sen. Claire McCaskill said Monday.

The Missouri Democrat hosted a Senate field hearing at a senior center in suburban St. Louis to address concerns about the fast-growing reverse mortgage industry. The mortgages, which are loans available to those age 62 or older that convert home equity into cash, have exploded in popularity in the past decade — the Federal Housing Association endorsed 112,148 reverse mortgages in fiscal year 2008, up from 7,757 in 2001.

Mathew Scire, director of the Government Accountability Office’s Financial Markets and Community Investment team, testified that reverse mortgages are complex and costly for the vulnerable population they serve. McCaskill agreed.

“You may borrow $100,000 and 10 years later owe $200,000,” she said.

The GAO’s review of marketing material for reverse mortgages found examples of potentially misleading claims, Scire said. Some promise “lifetime income,” which Scire said isn’t always guaranteed.

A reverse mortgage allows elderly homeowners to convert equity in their homes into cash. It differs from a home equity loan or a second mortgage because the borrowers don’t have to repay the loans as long as they continue to live in and maintain the home. Most reverse mortgages are insured through the Federal Housing Administration’s Home Equity Conversion Mortgage program.

In fact, because the loans are federally guaranteed, reverse mortgages are costing taxpayers millions of dollars, McCaskill said.

In its fiscal 2010 budget request, the Department of Housing and Urban Development sought $798 million to cover potential losses from declining value of homes using reverse mortgages.

Peter Bell, president of the National Reverse Mortgage Lenders Association, told McCaskill his agency has polled state attorneys general offices, bank regulators and the Federal Trade Commission and found very few complaints about reverse mortgages.

Bell said strong safeguards are in place to ensure against fraud, including mandatory counseling for anyone considering a loan.

“I don’t think you could come up with any business in America in which every potential customer is referred to an independent third-party specialist, a counselor at a HUD-approved agency, to review the transaction under consideration and its implications before a decision is made to proceed,” Bell said.

But Scire said GAO investigators posed as potential customers at 15 counseling sessions and found none of the counselors covered all of the topics required by HUD.

Scammers also are taking advantage of reverse mortgages, said Anthony Medici, special agent in charge of HUD’s Criminal Investigation Division. In some cases, unauthorized individuals — relatives, even neighbors — keep payments after the homeowner dies or permanently leaves a residence. Another concern involves financial professionals convincing seniors to invest proceeds into some other financial product they may not be able to access for years, perhaps until after their life expectancy.

Source