Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19
US China War - Thucydides Trap and gold - 16th June 19
Gold Stocks Bull Upleg Mounting - 16th June 19
Gold Price Seasonal Trend Analysis - Video - 16th June 19
Fethiye Market Fruit, Veg, Spices and Turkish Delight Tourist Shopping - 16th June 19
US Dollar Gold Trend Analysis - 15th June 19
Gold Stocks “Launch” is in Line With Fundamentals - 15th June 19
The Rise of Silver and Major Economic Decline - 15th June 19
Fire Insurance Claims: What Are the Things a Fire Claim Adjuster Does? - 15th June 19
How To Find A Trustworthy Casino? - 15th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match - Video - 14th June 19
Gold and Silver, Precious Metals: T-Minus 3 Seconds To Liftoff! - 14th June 19
Silver Investing Trend Analysis - Video - 14th June 19
The American Dream Is Alive and Well - in China - 14th June 19
Keeping the Online Gaming Industry in Line - 14th June 19
How Acquisitions Affect Global Stocks - 14th June 19
Please Don’t Buy the Dip in Nvidia or Other Chip Stocks - 14th June 19
A Big Thing in Investor Education is Explainer Videos - 14th June 19
IRAN - The Next American War - 13th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match Contest - 13th June 19
Top Best VPN Services You Can Choose For Your iPhone - 13th June 19
Tory Leadership Contest Betting Markets Forecast - Betfair - 13th June 19
US Stock Market Setting Up A Pennant Formation - 13th June 19
Which Stocks Will Lead The Cannabis Rebound? - 13th June 19
The Privatization of US Indo-Pacific Vision - Project 2049, Armitage, Budget Ploys and Taiwan Nexus - 12th June 19
Gold Price Breaks to the Upside - 12th June 19
Top Publicly Traded Casino Company Stocks for 2019 - 12th June 19
Silver Investing Trend Analysis - 12th June 19
Why Blue-Chip Dividend Stocks Aren’t as Safe as You Think - 12th June 19
Technical Analysis Shows Aug/Sept Stock Market Top Pattern Should Form - 12th June 19
FTSE 100: A Top European Index - 12th June 19
Gold Surprise! - 11th June 19
How Forex Indicators are Getting Even More Attention in the Market? - 11th June 19
Stock Market Storm Clouds on the Horizon - 11th June 19
Is Your Financial Security Based On A Double Aberration? - 11th June 19
What If Stocks Are Wrong About Interest Rate Cuts? - 11th June 19
US House Prices Yield Curve, Debt, QE4EVER! - 11th June 19
Natural Gas Moves Into Basing Zone - 11th June 19
U.S. Dollar Stall is Good for Commodities - 11th June 19
Fed Running Out of Time and Conventional Weapons - 11th June 19
Trade Wars Propelling Stock Markets to New Highs - 11th June 19
Best Travel Bags for Summer Holidays 2019, Back Sling packs, water proof, money belt, tactical - 11th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

Reverse Mortgages 101

Housing-Market / Mortgages Mar 19, 2014 - 10:04 AM GMT

By: Don_Miller

Housing-Market

My grandfather liked to use clever sayings to make a point. One of his favorites was, “the same thing, only different!” As we pulled together this article, I immediately thought of how his funny little saying applied.


The Same Thing…

When you buy an annuity, you give a private company a sum of money in exchange for its promise to pay you a fixed amount every month until you die. As an investment, it’s not likely to pay off – unless you happen to outlive your expected mortality – but it may still be a good idea. And if you’re one of the lucky folks who outlive their actuarial life expectancy, an annuity can turn out to be a terrific investment.

A reverse mortgage is quite similar. But instead of writing a big check to an insurance company, you give the bank a mortgage on your home based on your current equity. In return, the mortgage company agrees to pay you a certain amount every month for some period of time: until you die, move out, or celebrate your 100th birthday (more on that later). For a reverse mortgage to be a good investment, you have to outlive your expected mortality and stay in your home.

It may not turn out be a good investment, but under certain circumstances it could still be a good idea. We’ll examine what a reverse mortgage is and how to determine if one is right for you. We also consider many of the risks involved, suggest steps to improve your position, and pass along tips on how to get the best possible deal available.

Reverse mortgages have many individualized, variable components. For our purposes, we are sticking to the basic concepts. If you think you are a good candidate, make sure to consult a licensed, professional HUD counselor to help tailor the product to your needs.

…Only Different

I’ve looked into reverse mortgages several times, and they always made me uncomfortable. The value of owning your home free and clear is one of my core beliefs.

Personally, paying off my mortgage was a tremendous emotional relief. Now it’s time to challenge that idea.

What if you could mortgage your home and no matter how high the balance on that mortgage got, no one could throw you out of your home? As long as you kept up your home and paid your taxes and insurance, you could live there as long as you wanted. What if the property value became less than the balance of the mortgage, yet if you moved out and sold the home, you would not have to make up the difference? Or, when the house sells, the reverse mortgage is paid off, and you get the balance of any remaining equity?

In essence, these are the ideas behind a reverse mortgage. But just as insurance companies tilt the odds in their favor by setting the monthly payouts, the same is true for banks that hold reverse mortgages.

However, the “only different” part is this. Some reverse mortgages may be capped at a certain age (generally 100).  The rules are constantly changing so be sure you check if you apply for one.  With the advances in modern medicine, this could become a factor.. Unlike an annuity that continues to pay every month no matter how long you live, the payments from a reverse mortgage may have a stopping point. You still own your home after that and you can still live there until you die or it is no longer your principal residence, but you no longer receive monthly payments. 

The banks do very well financially on most reverse mortgages. Most folks send checks to the bank for 25 years or more before they own their home outright. With a reverse mortgage, the bank will own all – or a major part – of the equity in your home, and in much less time. You still have title to the property, but your equity could be depleted. The good news is they must continue to send you monthly checks which is the risk they take. 

Reverse mortgages are not right for everyone. While you may be feeling the pinch, there may be better remedies for your situation. If you are a good candidate, we can help you understand some of the common pitfalls and mistakes so that the monthly check can help you have “money forever.”

Back to Basics

A reverse mortgage is a special type of home-equity loan sold to homeowners 62 and older. It gives a homeowner access to some of the equity in their home in the form of monthly payments, with the protection of knowing that they can stay in their home as long as they pay their taxes and maintain the property.

When you die or move out, the mortgage must be repaid. The Federal Trade Commission report Reverse Mortgages states:

“The loan must be repaid when the borrower dies, sells the home, or no longer lives in the home as a principal residence. … Most reverse mortgages have a ‘nonrecourse’ clause, which prevents you or your estate from owing more than the value of your home when the loan becomes due and the home is sold.”

Federally insured reverse mortgages, known as Home Equity Conversion Mortgages (HECMs), are backed by the US Department of Housing and Urban Development (HUD). The National Council on Aging reports that HECMs represent 95% of reverse mortgages originated in the US. Since HECMs make up the vast majority of reverse mortgages, they are the focus of our report.

HUD Counseling and Other First Steps

Before a homeowner begins the application process, they must go to a HUD-approved counseling agency to learn about the cost and features of these loans. As you read on, you will probably agree that the cost of HUD counseling is money well spent. Most agencies charge around $125. The fees can be added to the loan proceeds, and you cannot be turned away if you cannot afford the fee.

The lender’s upfront fees can be quite expensive. Nevertheless, there are two types of HECMs: the HECM Standard Loan; and the HECM Saver Loan, which has a lower closing fee. For example, if a homeowner has a $250,000 home with no existing mortgage, the standard fee at closing (which is added to the mortgage) is $14,721. The HECM Saver Loan fee is $9,746.

The amount of monthly payments also varies. A 65-year-old with a Standard Loan would receive $754/month, while that same person with a Saver Loan would receive $730/month. In addition, there is a capped monthly service fee of $35 or $420 per year added to the loan to cover servicing costs.

The monthly payment also varies by the age of the homeowner when he takes out the loan. If you own a $250,000 home and you take out a HECM standard loan at age 65, your payouts will be $754/month. If you wait until age 75, they’ll be $950/month and $1,380/month if you hold off until age 85. The offered amounts fluctuate weekly with interest rates, just as mortgage interest rates do.

Please note that we recommend that both spouses be on a reverse mortgage. If there’s an age difference, the monthly amount is based on the age of the younger spouse.

So… should I get one?

Just because you qualify for a reverse mortgage doesn’t mean you should get one. Before you consider a reverse mortgage, you should check out our unbiased report that will give you all of the details for evaluating whether this is a good step for you. You’ll learn:

  • How a reverse mortgage is different from what you probably think it is, and why the number “100” is the most important number to consider… page 5.
  • The two types of reverse mortgages that comprise 95% of the market; pick the wrong one and you could have to shell out nearly 50% more in fees without even knowing it… page 6.
  • The three questions you must answer before you take on a reverse mortgage; ignore them and you could be trapped in your home forever… page 9.
  • The six-part checklist you need to ask your spouse or housemate to see if both of you can actually stay in your home… page 10.
  • The risks that come with a reverse mortgage: these are the ones the companies will never tell you about, but they’re real… page 13.
  • Who’s getting a reverse mortgage these days? The answer may surprise you, but it’s a reflection of the times… page 19.
  • Other realistic options to a reverse mortgage; miss these and you could make mistake you’ll never recover from… page 23.

Don’t even consider listening to a reverse mortgage pitch until you’ve had a chance to read through The Reverse Mortgage Guide.

The article Reverse Mortgages 101 was originally published at millersmoney.com.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Casey Research Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules