Fixed Rate vs. Monthly Adjustable Reverse Mortgage

When looking to get a FHA reverse mortgage, you now have the option to choose between a fixed rate mortgage and an adjustable rate mortgage. Not long ago, you only had one option - an adjustable rate reverse mortgage. Just recently, however, HUD has now provided a way to have another choice for your Home Equity Conversion Mortgage (HECM), or reverse mortgage.

Here are some reasons why a fixed rate reverse mortgage may be the better choice for you.

You Know How Much Money You Have

With an adjustable rate reverse mortgage, you never really know just how much money you have left available to you. Since the interest rate will change on either a monthly or annual basis, you could end up with a lot less money overall than what you had anticipated.

A fixed rate reverse mortgage, however, gives you a lump sum of all money coming to you. You receive it all at closing. There are no unseen elements in the plan that can affect changes in the amount you have later. It is all yours from the very start.

There Are No Surprise Interest Rate Hikes

Our nation's economy has seen a lot of changes recently, and there may still be unforeseen problems yet to come. Problems in it will affect your interest rates - either for good or bad. If you recently suffered loss of money in some investment you had, you have already experienced what could happen. Hopefully, it will not happen again anytime soon.

On an adjustable rate reverse mortgage, interest rates are protected by HUD and limited to a 10% increase from the starting point. No matter how you look at it, though, many people could not afford that kind of a raise in their interest. While no payments are made during the lifetime of the owner of the reverse mortgage, it is charged to the account and it will be paid later.

A fixed rate reverse mortgage does not have any changes in the interest rate. It is set from the start, which is why they can give it all to you as soon as the ink is dry.

You Can Make Better Plans for Your Money

An adjustable rate reverse mortgage is often a good way to go. There is, however, the potential for a rapid and unexpected drain of your money through increased interest rates.

A fixed rate mortgage gives you all your money from the start. This enables you to know exactly how much money you have allowing you to make better plans with it. This can also make your relatives - your heirs - happier because they know that more of it will probably come their way if you do not use it all yourself. Of course, if you do live longer than anticipated, it also means that your money will possibly last longer than an adjustable rate reverse mortgage which may experience higher than expected interest rate changes.

You can start looking into whether or not a fixed rate HUD reverse mortgage is what you need by using an online reverse mortgage calculator. Counseling is required by law and will also have to be provided in order to help you make the right financial decisions.

A thirteen-year veteran of the mortgage industry, Robert Griffin specializes in reverse mortgages and has helped over 3000 Americans find financial security with a reverse mortgage. 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 more information, please call (866) 683-3690 or complete our online Reverse Mortgage Information.

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GAO Report Says Reverse Mortgage Changes Have Mostly Positive Effect

The US Government Accountability Office released a new report which found that reverse mortgage policy changes from the Housing and Economic Recovery Act have had mostly positive effects on lenders and borrowers.  However, recent market changes and developments have increased HUD’s risk.

In order to examine how the HERA changes affected lenders and borrowers, the GAO surveyed a representative sample of HECM lenders, analyzed loan-level HECM data, and reviewed HUD estimates and analysis of HECM program costs.


Overall, the GAO found that current economic conditions have had a moderate upward influence on lenders’ plans but secondary market conditions have had a downward influence on about one-third of lenders’ plans to start or continue offering HECMs.

Some industry participants that the GAO interviewed stated that the changes were a good compromise that benefited borrowers by limiting the origination fee and increasing the loan limit. Additionally, officials at NRMLA and MBA said the changes benefited lenders by making the product more attractive to individuals with higher-value homes.

The report also addresses the Fannie Mae pricing changes and estimates that approximately 90 percent of lenders viewed secondary market pricing requirements and the transition to live pricing as important factors in recent margin rate increases on HECMs.

Fannie officials explained that as the price they pay lenders for HECMs falls, the margin rate the lenders charge the consumers generally increases.  Some lenders we surveyed noted that margin rate increases stemming from pricing changes could make HECMs less attractive to borrowers because they would not be able to obtain as much cash from their HECM.
Some lenders noted that live pricing complicates their relationship with borrowers because the interest rate can change between loan application and closing, which may result in the senior being able to receive less money from their HECM than originally quoted.

Ginnie Mae is discussed as an alternative to Fannie Mae but because of certain provisions, lenders are exposed to extra risk on the loans as compared to selling HECMs to Fannie Mae.

Ginnie Mae requires HMBS issuers to buy back the HECM when the loan balance reaches 98 percent of the loan’s maximum claim amount.15 Second, issuers are required to pay interest shortfalls to investors when the loan is terminated mid-month.

The GAO found that in recent years there has been a rapid increase in the number of lenders participating in the HECM program. However, the bulk of HECM business is concentrated among a relatively small percentage of lenders. In fiscal year 2008, roughly 80 percent of all HECMs were originated by fewer than 300 lenders, or about 10 percent of HECM lenders says the report.


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RBS Looking to Package Reverse Mortgage Products

Reverse mortgage lending in the United States isn’t the only country getting special attention from consumer groups. Martin Lynch, head of reverse mortgages, RBS Reverse Mortgages in Australia told Lending Central that consumer advocacy group CHOICE is still not a fan of reverse mortgage products.

CHOICE is the largest consumer organization in Australia, which aim is to tackle the issues that really matter to consumers, arming them with the information to make confident choices and lobbying for change when consumers are getting a raw deal says their website.

Lynch maintains that the view adopted by CHOICE is “old fashioned” and does not take into account the current checks and balances (such as the stipulation that all customers consult with a legal or financial representative) and the respective guarantees of lifetime tenancy and customers never owing the bank more than the value of their property.

“CHOICE still has the perception that there’s a lot of predatory lenders out here waiting to get their hands on little old ladies’ money. “That view was out of date ages ago,” he declares. Lynch developed and launched RBS Reverse Mortgages (formerly ABN AMRO) in 2005.

According to the article, the reverse mortgage market in Australia is vastly different to reverse mortgage markets in the UK and US. “The primary driver in Australia is the achievement of low interest rates. In the US and UK the competitive driver is maximizing the amount that can be lent,” says Lynch.

“Here consumers borrow very conservative amounts by comparison. Typically in Australia 60-year olds can borrow less than half of what they could if they lived in the US or UK, which means the compounding issue here is less severe.”

“We’re also noticing that the age people take the product out is very different. The average age of our customers is 74 (40% of which are couples, 40% single women and 20% single men); whereas in the UK the average age is 68. Here people are encouraged to explore other avenues before turning to a reverse mortgage.”

RBS Reverse Mortgages is currently looking at diversifying by bringing packaged products into the equation. A car leasing package as well as healthcare solutions are being considered. “These packages are an ideal adjunct to the monthly income feature because suppliers need to know that monthly payments will be forthcoming,” he says.

“Many reverse mortgagees don’t have an income and therefore they can’t get credit for these things. But with the Royal Bank of Scotland behind the reverse mortgage suppliers know that the income will keep coming.”

I think it’s a interesting idea but with so much attention being put on cross selling here in the US, I don’t think we are anywhere close to these types of packaged products.

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Your Finances: Retirees should consider reverse mortgage

For some retirees, their financial plan centers on selling their home, downsizing to an apartment or smaller home, and using the remaining proceeds to help fund their retirement. Sounds like a good plan, until you retire and the housing market slows. Unfortunately, for many retirees, this is a current reality. If you find yourself in this situation, then you may want to consider a reverse mortgage.

A reverse mortgage enables homeowners, age 62 and older, to convert the equity in their homes to cash, without selling the property. The homeowner retains title and all the responsibilities of home ownership, such as taxes, insurance and maintenance. The homeowner or their estate ultimately has to repay the amount borrowed, plus interest and fees. But that repayment is not required until the homeowner dies, sells the home or stops living there permanently (perhaps to live in a nursing home). At no point is the borrower or their estate responsible for more than the price for which the home is sold. However, if the borrowers' heirs decide to retain the home, the entire outstanding loan balance will be required to be repaid.

Flexible financial options

Reverse mortgages offer the flexibility of financial options. The borrower can receive money as a lump sum payment, fixed monthly payments, a line of credit, or any combination of these. Additionally, funds from a reverse mortgage aren't taxed, since they are loan proceeds, not income. Homeowners may change their financial choice as their needs change. Borrowers can never be forced to leave their homes, as long as the property taxes and insurance payments are maintained. The amount of reverse mortgage equity you qualify for depends on factors such as your age, current interest rates and the value of your home. Income and credit history are not considered during the underwriting process. This is a great advantage for seniors who have trouble qualifying for traditional loan products.

Another often overlooked benefit is there are never any monthly payments due and you can stay in the house you have come to call home. The emotional peace of mind of being able to remain in your house is truly priceless. Of course, there are trade-offs. Compared to a regular mortgage or home-equity loan, the closing costs are usually higher. Therefore, reverse mortgages are not for everyone and should not be entered into lightly.

As is the case with any product, you may encounter people seeking to take advantage of you. That is why it is important to work with a reputable lender. One way to protect yourself is by working with a company that is a member of the National Reverse Mortgage Lenders Association. Members of NRMLA subscribe to a code of ethics focused on protecting the homeowner.

If you are interested in exploring a reverse mortgage, ask your lender to educate you on your options. Do not sign anything unless the process is clear to you. If you are unsure, invite a friend or family member to be part of the process. The goal here is peace of mind.

Laura Medigovich is a financial planner and assistant vice president for M&T Bank's Hudson Valley region. Her column appears Sundays.

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Mortgages what Can I afford? Would debt consolidation help?

The better your credit, the easier it is for you to qualify for a loan. Can I afford a home? How much money can I qualify for? As a general rule , your buying power is calculated by multiplying your annual gross income by two and a half (2 ½).


What Can I Afford?

The better your credit, the easier it is for you to qualify for a loan. Can I afford a home? How much money can I qualify for? As a general rule , your buying power is calculated by multiplying your annual gross income by two and a half (2 ½). For example, if you have a household income of $45,000, you might be able to qualify for a $112,500 home. You could actually qualify for more or less, depending on your individual debt, credit history and amount that you have for a down payment.

Debt-to-Income Ratio

Your buying ability will be affected by factors such as your income, down payment, debt, and credit history. Your debt payments, such as credit card bills, car loans, and other expenses such as housing expenses, alimony and child support, should not exceed 36% of your gross income.

To calculate your debt-to-income ratio, divide your total monthly debt expenses by your total monthly income.

Mortgage Types/Lenders

Mortgage types, rates and lenders are usually published daily in the business section of your daily newspaper. Today's homebuyer has more financing options than ever before.

From traditional mortgages to adjustable-rate and hybrid loans, there are financing packages designed to meet the needs of virtually everyone.

While the different choices may seem overwhelming at first, the overall goal is really quite simple: you want to find a loan that fits both your current financial situation and your future plans. Ask your lenders for a "good faith estimate" so you can compare all of your costs and make the decision that will fit into your budget.

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Fixed Rate Mortgages

If you plan to own your home for five or more years, a fixed rate mortgage can protect you from inflation. Since your principal and interest payments are fixed, your monthly payment stays the same.

Long-term loans (20-30 years) make it easier for a person to qualify for a loan by giving you a lower monthly payment but at a higher interest rate. This means you are paying more interest for the full term of the loan.

Short-term loans (10-15 years) give you higher monthly payments but the interest rate is lower, which helps you build equity in your home much faster because less of the payment goes to interest.

Adjustable Rate Mortgages (ARM)

ARMs are popular because their interest rates are lower than a fixed rate mortgage, giving you a lower monthly payment. This helps the consumer qualify for a larger mortgage, but the interest rate and monthly rate may change within a given time and to a predetermined amount.

Understand the consequences to your budget by looking at each scenario. Make sure that you can afford your new monthly amount if the rate goes up.

Bi-Weekly Mortgages Recently banks have come up with creative ideas to help the consumer pay their mortgage on a bi-monthly basis instead of the traditional once a month method. Through this method of payment, you can pay off your home in less time with less money. By simply paying half of your monthly payment every 2 weeks, you will subtract 7-9 years off an average 30-year loan. You will earn equity in your home faster because more of your payment is being applied to the principal of the loan instead of the interest. At the same time, if you have Private Mortgage Insurance (PMI), those premiums will also be eliminated in a shorter period of time, which will result in a greater savings over the life of the loan. Your lender, interest rate, escrow payments, etc. all remain the same.

Balloon Mortgages

Balloon mortgages are short-term loans that have some of the features of a fixed mortgage. The loans provide a level payment feature during the term of the loan, but as opposed to the 30 year fixed rate mortgage, balloon loans do not fully amortize over the original term. Balloon loans can have many types of maturities, but most balloons that are first mortgages have a term of 5 to 7 years. At the end of the loan term, there is still a remaining principal loan balance and the mortgage company generally requires that the loan be paid in full or refinanced.

Reverse Mortgages

A reverse mortgage is a complex home loan designed for senior homeowners who have built up substantial equity in their property.

In a reverse mortgage, the lender loans you money based on the value of your home, the amount of equity you have in the home, and your age at the time of the loan application. The lender pays you the money either in a lump sum, in monthly installments, or as a line of credit. Unlike a traditional home equity loan or second mortgage, repayment is not required until you sell your home, move out permanently, or die. The amount of money you owe increases over time because you do not make payments. If you sell your home, you can keep any proceeds from the sale of your home in excess of what you owe the lender. To qualify for a reverse mortgage you must be at least 62 years old and the mortgage on your home must be completely or nearly paid off. You can get a reverse mortgage regardless of your current income.

F.H.A. Home Loans

The "203B" F.H.A home loan requires 3% from the borrower and permits 100% of the money needed for closing costs to be a gift from a relative, non-profit organization or a government agency. F.H.A. home loans do not have strict borrowing criteria. Someone may have had a few credit problems and still be able to qualify for this "203B" loan. For more information on F.H.A. loans go to the website www.hud.gov/offices/hsg and review the different information capsules they have available to the public.

View more info -- http://www.anewhorizon.org

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What should you know before your think about a reverse mortgages

The number of reverse mortgages backed by the government jumped nearly 20 percent in March and April alone from the same period in 2008. At a time when seniors have seen their retirement assets depleted by market losses, tapping home equity has been a safety net.  But it can be a risky one.

If your parents are at least 62 years of age and have significant equity in their home, a reverse mortgage can turn that equity into tax-free cash without forcing them to move or make a monthly payment.

If it’s right for them, it’s a worthwhile financial tool. If not, they could make some serious mistakes with their financial future.

A reverse mortgage gets its name because of the way it works. Instead of the borrower making payments to the lender, the lender releases equity to the borrower in a number of forms:

• A lump sum cash payment;

• A monthly cash payment;

• A line of credit (which tends to be the most popular option);

• Some combination of the above.

When the owner dies or moves away, the house can be sold, the loan paid off and any leftover equity value can go to the living owner or the designated heirs.  Heirs don’t have to sell the house. They can either pay off the reverse mortgage with their own funds or refinance the outstanding loan balance within six months with the option of two 90-day extensions that must be applied for.

There are three basic types of reverse mortgages:

• Single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations;

• Home Equity Conversion Mortgages (HECMs) are federally insured reversed mortgages backed by the U. S. Department of Housing and Urban Development (HUD);

• Proprietary reverse mortgages are private loans that are backed by the companies that develop them.

The size of a reverse mortgage is determined by the borrower's age, the interest rate and the home's value. The older a borrower, the more they can borrow, but the amounts are capped by the maximum FHA loan limit for each city and county.

Reverse mortgages have traditionally been chosen by older Americans who can’t cover everyday living expenses or who otherwise need cash for such things as long-term care premiums, home healthcare services, home improvements or to pay off their current mortgage or credit card greater than their income can support. More recently, though, they’ve become popular with individuals who see them as a better alternative to home equity lines. Some use the proceeds to supplement monthly income, buy a car, fund travel and second homes and evaluate with the help of a financial adviser if reverse mortgage funds can be used to restructure estate taxes.

Elderly borrowers will have to consult with a HUD Counselor or financial advisor before they’re granted this loan – that’s one of the requirements. They should consider a Certified Financial Planner ™ professional to do this because reverse mortgages can be complex and risky. This step can be completed within the first few days of the process. The basic loan closing now takes place in about 30-40 days from the date of application. Generally the only out-of-pocket cost is an appraisal fee ranging from $300- $500.

Here are other things to consider:

Cost can be substantial: Reverse mortgages are generally more expensive than traditional mortgages in terms of origination fees, closing costs and other charges. The basic FHA-backed HECM loan finances these fees into the initial loan balance, and they can run between $12,000-$18,000. The loans are based on anticipated home value appreciation of 4 percent a year, so if the housing market is healthy, those costs are generally recovered in a short period of time. But if the housing market sours, it will definitely take longer to recoup those fees.

They’ll need to make sure they’re not endangering their Federal retirement benefits: The basic FHA HECM is designed as tax-free income to the senior receiving their Social Security income. However, if their total liquid assets exceed allowable limits under federal guidelines, they might endanger your benefits. This is another critical reason to work with a financial adviser on this decision.

Rates can be higher: Reverse mortgages have rates that are typically higher than those charged on conventional mortgages. Interest is charged on the outstanding balance and added to the amount they owe each month.  Again, check the total annual loan cost.

Their mortgage can be called: The homeowner or estate always retains title to the home, but if they fail to pay your property taxes, adequately maintain their home, pay their insurance premiums, or change their primary residence, the lender can declare the mortgage due or reduce the amount of monthly cash advances to pay those overdue amounts.

The family needs to talk. If your parents’ house is their major asset, getting involved in a reverse mortgage may not leave much to the next generation – if it appreciates, there may be some difference that the kids can have. That’s why that in addition to discussing a reverse mortgage with a financial adviser, parents and their adult children need to talk with their family.


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There's No Place Like Home

Retirees have many housing options available


People are enjoying longer and healthier lives. As a result, seniors are living independently for greater periods of time. The decision on where to live after retirement is one that every retiree will have to make. However, these days there are many options available to retirees.

Staying in the Family Home

For many retirees, staying in the family home is a priority. Carrie Schonlaw, aging program coordinator for the Five County Association of Governments, says this option often requires some modifications to ensure safety and comfort.

“People want to age in place and stay in their homes for as long as they can,” Schonlaw says. “There are a few very simple and inexpensive things that can be done to help people maintain as much independence as possible.”

Easy Home Adaptation:
✔ Widen doors to accommodate wheel chairs.
✔ Install ramps or do stair modification.
✔ Put grab bars in bathrooms and non-skid decals in shower.
✔ Buy a shower chair.
✔ Get a raised toilet.
✔ Install anti-scald devices.
✔ Brighten dark spaces.
✔ Remove slick surfaces or tripping hazards like throw rugs.
✔ Put sturdy rails throughout the home.
✔ Take advantage of fire prevention technology.

Reverse Mortgage

Surviving in today’s economy can be a challenge for seniors living on a fixed income. For some, a reverse mortgage is a simple way to remain in the family home. A reverse mortgage allows borrowers 62 years and older to spend the equity in their home, but still retain ownership.

Alan Crooks, certified mortgage specialist, says the lender collects the interest on the home when it is sold or the person dies. “You can never owe more than the home is worth,” Crooks says. “The estate will gain on the appreciation and lose on the mortgage.”

With a reverse mortgage, homeowners have the choice of taking a single lump sum of cash, getting a monthly loan advance, establishing a line of credit or using a combination of these options. The amount that can be lent depends on the age of the homeowner, the current interest rate and the appraised value of a home or the Federal Housing Administration’s mortgage limits for a specific area.

Before receiving a reverse mortgage, borrowers are required to take an informational class. Crooks says the advantage of a reverse mortgage is that the homeowner never has to make a payment as long as they continue to live there. The loan is due when the owner dies, sells or moves away from the home. If there is equity left over when the property is sold, the homeowner or estate gets that money back.

Downsizing

As people age, routine house and yard maintenance becomes more challenging. For some, moving into a smaller home is the perfect solution. John Houston, Realtor for ERA Brokers Consolidated, says there are endless housing choices for seniors who wish to live in Washington County.

“The availability of properties is wonderful,” Houston says. “With interest rates being as low as they are and inventory being as high as it is, there are great opportunities to buy and downsize.”

However, Houston says downsizing is only a good option if seniors get into a home that is right for their needs and budgets. Houston advised considering the following issues before making a purchase:

✔ Association Dues — Fees go up as the cost of insurance and grounds keeping increase. People with a limited budged should remember the price they pay when they move in won’t stay the same forever.

✔ Stairs — These can present a problem for seniors as they age. Fortunately, there are numerous single level units available in Washington County.

✔ Amenities — Each area features different options. Check to see if a property offers what a person desires such as a pool, exercise room or club house. For those who don’t want these amenities, consider areas where they are not offered and therefore not included in the purchase price.

✔ Association Rules — Some associations don’t allow owners to rent their property after they move out. Other places have rules against upgrades or landscape changes. Storage of recreational vehicles, off-highway vehicles and boats are sometimes prohibited.

✔ Pets — Not all places allow pets or have spaces for them to play.

✔ Demographics — Some neighborhoods are geared towards a younger population and have children playing outside or higher noise levels.

✔ Proximity — Check to see if the property is close to shopping facilities, medical care, churches and other places the homeowner may frequent.

✔ Social Connections — Many retirement communities offer group activities and places for residents to gather.

✔ Income — Find out how the purchase of a home will affect trusts, wills and estates.

Sensational Senior Living

St. George is a Mecca for senior citizens, sporting an endless array of unique housing opportunities. For many, retirement signals a chance to ramp up activity rather than a time to slow down. Places like SunRiver St. George were developed with this personality type in mind.

Billed as “an active adult golf course facility for people 55 and better,” SunRiver was designed for seniors on the go. However, SunRiver is about more than beautiful homes in a golf course setting. SunRiver marketing director Micheal Green says the emphasis is on a community center where residents can enjoy a wide range of sports, educational classes, art and leisure activities.

“The community center really is the hub of activity,” Green says. “We have an environment that fosters social contacts, physical activity and educational opportunities.” Seniors who no longer feel comfortable driving their cars have no problem getting around SunRiver — golf carts are welcome throughout the development.

Assisted Living

Aging baby boomers are looking for more than a traditional nursing home. Each person has different needs, so the “one size fits all” form of assisted living has gone by the wayside. Today, seniors can choose their level of care based on individual needs. Some developments such as Beehive Homes offer housing for all stages of life.

On the most basic level, the Beehive Cottages has individual condos based around a community center where residents can go for meals, exercise and leisure activities. Administrator Mary Sanders says the cottages are designed for people who don’t need supervised care but are attracted to the amenities and community lifestyle.
“Studies of aging baby boomers have found the more active they remain — physically and mentally — the better their quality of life,” Sanders says.

Beehive Homes has two levels of more intensive care based in group home settings. Level One offers help with things such as showering, laundry and supervision of medication. Level Two is more intensive and features a certified nursing assistant on staff at all times. Beehive also has an Alzheimer’s Unit within its system.

Brenda Harrison, house manager at Beehive Homes, says the modern day group home is tailored to the individual. All meals are home cooked and served in a casual setting. Residents who are able to care for a pet are welcome to have them. Activities and special events are part of the package.

“We try to put ourselves in our residents’ position,” Harrison says. “We treat our residents with the utmost respect and dignity.” sgm

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