Must view powerpoint, enter info below to see the pitfalls of a reverse mortgage
Please fill out the below form to instantly view a current powerpoint that digs into the possible problems with a reverse mortgage. Your powerpoint will be a link to click on and will appear here after entering info below.
Welcome to Reverse Mortgage AARP
Thank you for visiting Reverse Mortgage AARP .com We take an in depth look at Reverse Mortgage Rates and the major changes that have taken place in the Reverse Mortgage World.
THE HECM PROGRAM IS BEING CUT PLEASE CALL NOW 1-516-900-3332
BEFORE IT IS TOO LATE TO QUALIFY
We also analyze many popular third party indpendent takes on reverse mortgages and look at both sides of the coin.
We take an in depth look at Reverse Mortgages and AARP's take on them. Reverse Mortgages are not all roses and sunshine, it is a mortgage not free money. Anyone making it sound too good to be true probably is. Most borrowers never make payments and end up with compounding interest that can get out of control. The interest and MIP costs start eating into the equity faster than they would like but normally it far outweighs the other options that should be considered as well, like selling a property and downsizing. The most important things to consider when weighing these options are the taxes and insurance payments, and payments to keep up the property versus the costs if you decide to rent or buy another home. Keep in mind you can do a reverse to purchase or a HECM for Purchase to downsize as long as you have the necessary downpayment.
AARP recently came out with a response on HUDs anticipated change of seeing if a borrower is financially fit to get a reverse mortgage and pay their property taxes and homeowners insurance. AARP feels as long as the requirements are within reason they are an improvement to the program. This makes sense as a senior running into problems down the line with property taxes should consider other options like selling and downsizing.
Many websites have incorrect or outdated information on reverse mortgage rates and fees. Our lenders are now offering that they will contribute to paying some of your closing costs on the 5.06% fixed rate HECM which is no longer the floor rate. Many lenders websites will tell you that is the only rate, but fixed rates as of today 3/13/18 go down as low as 4.25%, there is a 4.99%, 4.75%, 4.5%, 5.06% and it could be as high as 5.56% but not with our hand picked lenders. Where available our lenders offer the Open ended Line of Credit on the Adjustable Rate which allows you to pay down your loan and borrow the funds back again. Keep in mind that there is a monthly mortgage insurance of 0.5% on all FHA insured reverse mortgage products. So when comparing to a standard mortgage rate remember to add 0.5% to the rate you choose. The closing costs for a 4.5% are higher than the 4.75 to 5.06% rates. We feel the adjustable is still the best option as the margin goes down to as low as 1.75% so for short term the rate will be better than the fixed due to the poor economy. Also with the fixed you do not have access to the line of credit, with the adjustable you do. The adjustable rate is much more sustainable as you never know what the future holds and you can use the line of credit, pay it back and borrow it again and again.
In our opinion the Annual or Hybrid Adjustable Rate is better than the Monthly adjustable because it has a 2% per year cap, only adjusts once a year and has a 5% lifetime cap. The Monthly ARM has a lower current rate so for short term it may be better in some cases, it has a 8% lifetime cap and no cap on the annual or monthly adjustables. Adjustable Rates are normally lower in a bad economy and will rise with an improving economy.
Please call us anytime at 1-516-900-3332
Let us begin with understanding that there are no institutions loaning money in a reliable and predictable manner for free. When money is borrowed, it must be paid back and some amount of interest will be due. For the borrower, what matters is how much interest, when payments are required, and at what point the entire debt must be repaid. Ideally, the payment should not exceed the borrower’s ability to pay. The more flexibility there is in the structure, the greater freedom and security for the debtor. Little wonder an unstructured loan can be attractive.
A Home Equity Conversion Mortgage (HECM) reverse mortgage as a line of credit, secured against one’s primary residence, is an unstructured loan. No payments, even for interest, are required and there are no pre-payment penalties. If the borrower elects not to make an interest payment, the interest each month is rolled into the loan. The debt is not due until the house is sold or the last borrower moves, dies or turns 150 years old.
That is as unstructured a loan as anyone can expect to get. You can borrow as you desire from the available funds, pay back what you want when you want, or leave the debt to be resolved after your death.
When payments are made, they go first to interest and fees. After these are paid in full, additional payments are applied to principal. That increases the available funds, which can be borrowed from again. Since the borrower controls when and how much interest is paid, it becomes possible to coordinate these payments for the greatest advantage against tax obligations.
Because the loan is unstructured, it can be used strategically to avoid withdrawals in a bear market and maximize tax deductions by paying interest in a bull market.
Structured loans are almost always “full recourse”. If a house secures the loan, both the property and the borrower can be pursued in a default. That means if the collateral isn’t sufficient to pay the debt plus the cost of recovering the debt, the remainder is still owed by the borrower.
The unstructured HECM offers a tremendous advantage. Because it is insured with the federal government through the Federal Housing Administration, both the lender and the borrower have security. If the debt exceeds the fair market value for the home at the time of sale, the insurance pays the difference. The borrower (or their heirs) can’t be “underwater” with a Home Equity Conversion Mortgage. No one can owe more than the house sells for. It is a “non-recourse” loan.
The FHA insurance also protects the credit line, assuring the money will be there even if the lender goes out of business, the home goes down in value, or the borrower has unrelated credit problems. A HECM credit line is as secure as money in the bank.
Incredibly, with a HECM, the available credit line also grows, compounding monthly based on the cost of borrowing (at the same adjustable rate as is charged on the debt). This cost-of-living adjuster rewards prudence and long term planning.
01/30/2013: HUD Mortgagee Letter is in
They are allowing Case numbers until 3/31/13 to do the standard HECM, must close before 7/1/2013
Regarding the loss of the Reverse Programs most popular option the Fixed Rate Standard:
AARP Blog wrote: "You just might find that big changes to the program make these loans less appealing"
Due to the number of reverse mortgage borrowers increasing defaults on taxes and insurance rising rapidly to 1 in 10 and the FHA's analysis showing a shortfall of 2.8 billion as a worse case scenario, FHA has and is taking aggressive action with the elimination of the most popular fixed rate standard reverse where a borrower gets a full draw and does not have access to any future equity.
The program's next change is to limit the full draw on the adjustable rate program and to leave a set aside to cover annual taxes and insurance premiums. The current option of set asides or escrows with the program is 10 years are put into a fund. As long as the escrows earn interest or equity this can make perfect sense, but what happens after 10yrs when a senior is used to Not having to pay their taxes and insurance and in 10 years inflation and taxes will be brutal on the retired seniors that didn't plan ahead enough.
We feel the 1 in 10 defaults is not accurate, keep in mind you are dealing with Seniors that may not be aware their homeowners or taxes are in default. Most of the major servicers are very good in dealing with the seniors and helping them through the proof of homeowners and taxes paid, but some are not. There are many complaints of the confusing paperwork the lenders send, and many snowbirds aren't in their primary residences during the winter season when taxes are due. In addition there are many seniors that are trying to sell their homes to downsize, payments will be made when they sell and the loan will never go into default.
We feel the problem is more with property taxes for seniors, and models of states with a cure for property taxes and seniors should be looked at.
THIS JUST IN: Expected information regarding the anticipated Mortgagee Letter 1/30/2013
January 30, 2013 Insider Information/not guaranteed to be accurate on the anticipated Mortgagee letter coming out any minute now:
Standard Fixed Rate HECM will allow case numbers up to March 1, 2013, not Feb 1, 2013
Fixed Rate Standard HECMS will be allowed to close up to July 1, 2013
There are no expected limit cuts or mortgage insurance increases.
THIS JUST IN: Dec 27, 2012
The Wall Street Journal published a response article "Owners Should have Access to Their Housing Wealth" by NRMLA President Peter Bell to the original article "Mortgages in Reverse"
The original article "Mortgages in Reverse" argued that the government had no business subsidizing senior's to blow through their life savings before they die. Bell's response argued it was completely inacurate and it was the only way to help seniors age in place or stay in their homes. He also argued where are they going to get the money to subsidize the increased cost of living? Bell went on to argue that the 2.8 billion shortage is an incomplete representation of the review's findings.