Reverse Mortgages & The Puzzle of Annuities

by Peter G. Miller
June 30th, 2010

It’s now being reported that the final version of Wall Street reform will exclude long-sought protections for annuity abuses, the financial contracts widely sold to seniors.

In 2008, Congress moved to protect reverse mortgage borrowers by prohibiting the sale of annuity contracts and other financial products by those who also sell reverse mortgages. The idea was to stop the sale of financial two-fers: First, seniors are sold a reverse mortgage and then an annuity funded with the money obtained from the reverse loan. For this combination to work, the annuity would have to pay substantially more than the interest cost and fees associated with the reverse mortgage. Unfortunately, most annuities do not offer such yields but they do inflict heavy penalties for those who make premature withdrawals and they do generate lots of fees and commissions.

Federal Regulation

One idea under Wall Street reform has been to finally regulate annuities at the federal level. This would mean that annuity buyers in all states would have the same level of consumer protection. Instead, Congress went in the other direction.
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New Protections For Reverse Mortgage Borrowers Debated In Washington

by Peter G. Miller
June 23rd, 2010

Efforts to provide new protections for reverse mortgage borrowers are now 50/50 in Washington — to this point the House of Representatives wants new rules while the Senate does not.

What’s going on is this: Under the new Wall Street reform legislation that’s being debated on Capitol Hill, it appears that a Consumer Financial Protection Bureau will be created. Given that this bureau will actually represent borrowers, it’s been fought by lender lobbyists in an effort to either dump the idea entirely or to water it down so that the bureau has no real authority. So far it looks as though the bureau will be in the final bill, but that won’t be certain until the final draft is passed on to the President.

Section 4316 of the House-passed bill — the Wall Street Reform and Consumer Protection Act. H.R. 4173 — contains consumer protections for reverse mortgage borrowers. There is no similar language in the Senate version of the bill.
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HELOC vs. Reverse Mortgage

by Francine Huff
June 17th, 2010

A reverse mortgage allows you to convert some home equity into cash. The money can be used for any purpose, including medical bills, property taxes, home repairs, or paying off debt. But a home equity line of credit (HELOC) could also allow you to tap home equity to get the cash you need. Here are some things to consider when choosing between reverse mortgages and HELOCs.

Repayment Schedule

A reverse loan does not have to be repaid until you move out of your home. So you can borrow with a reverse home mortgage and live there for the rest of your life without having to make any monthly payments. With a HELOC, you are required to make monthly payments if you carry a balance. When deciding whether to use a HELOC, it’s important to look at your current income as well as your future income to determine if you can afford to make monthly payments on a loan.

Mortgage Interest Rates

Reverse loans can have fixed interest rates if you withdraw a lump sum, or variable if you choose a line of credit or monthly disbursements. With a HELOC the interest is variable. Having an interest rate that can fluctuate makes if difficult to predict how much your monthly payments might rise in the future. But keep in mind that when interest rates fall, adjustable rates dip, too.

Compare Loan Deals

A housing counselor approved by the Department of Housing and Urban Development (HUD) can help you look at the pros and cons of reverse mortgages and HELOCs. If you don’t plan to live in your home for much longer, it could make more sense to get a HELOC if you need money now. A reverse loan may be a better option if you have no plans to move out of your home.

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Reverse Mortgages Not Ready For Reform

by Peter G. Miller
June 16th, 2010

The FHA Reform Act of 2010 went through the House last week with a vote of 406 to 4, but you can read the document from end to end and not see one direct reference to reverse mortgages insured by the FHA.

This seems like an odd omission given that the government’s reverse mortgage product — the home equity conversion mortgage (HECM) — is probably the best FHA candidate for new standards and requirements.

If you’re a borrower the current HUD reverse mortgage standards are just dandy, but if you’re writing claim checks you might have a different view. Here’s why:
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Can I Get a Reverse Mortgage If I Have Health Problems?

by Francine Huff
June 15th, 2010

Some people may find it difficult to qualify for a traditional mortgage if they have health problems that are keeping them from holding a steady job. With a reverse home mortgage there are no income requirements. In fact, many senior citizens choose to borrow reverse loans to help pay for medical costs.

Reverse Mortgage Guidelines

One of the reasons reverse loans appeal to many seniors is because there are no asset, income, or credit requirements. Anyone who owns a home and is 62 or older can apply for a reverse mortgage. However, whether or not you actually receive money depends upon how much home equity you have and your age. The older the you are, the more money you qualify to receive through a reverse loan.

Paying for Medical Care

Once you receive money from a reverse mortgage you decide how to spend it. The money can be used for medical costs such as doctors fees, prescriptions, or in-home care. You can also use it to pay for a long-term care insurance policy or even life insurance. Reverse mortgages also can be used to renovate your home to add ramps, handrails, or make other changes that can improve your qualify of life.

You can get more information on reverse mortgage guidelines by contacting a housing counselor approved by the Department of Housing and Urban Development. If your existing health insurance isn’t going far enough to cover your medical costs, a reverse loan could supplement your income and help pay for the care you need. You can begin shopping for reverse mortgage lenders here to compare different loan packages.

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“The Fonz” and Reverse Mortgages

by Francine Huff
June 14th, 2010

There was a time when “The Fonz” was the ultimate in cool. Who could have imagined the leather-jacket wearing rebel from the popular TV show “Happy Days” settling down and becoming a homeowner, let alone tapping his home equity with a reverse mortgage? But Henry Winkler, the actor who played the Fonz, has just become the new spokesperson for One Reverse Mortgage, the No. 3 reverse loan company in the U.S.

The company says it chose Winkler because of his great character. “Henry embodies this quality and has shown, through his excellence as an actor, children’s author, and family man that he represents all that One Reverse Mortgage is about,” Jay Farner, CEO of One Reverse Mortgage, said in a statement. “Because of his integrity, we feel that Henry will be very helpful in extending our reach with retirees and seniors, allowing us to open the dialogue about reverse mortgages and the many benefits they offer folks 62 or older.”

Reverse Mortgage Business Grows

One Reverse Mortgage, an affiliate of Quicken Loans, says it has grown a lot over the past two years as more senior citizens have seen the benefits of borrowing money with reverse loans. Winkler said in the statement, “Reverse mortgages provide homeowners with options, and unfortunately, not enough people know they exist. If I can help just one person save his or her home or live a happier retirement, my efforts will be well worth it.”

Considering All Options

Winkler isn’t the only celebrity tooting the horn of reverse mortgage lenders. Former Sen. Fred Thompson is the new spokesperson for American Advisors Group. Thompson, a politician, actor, author, and commentator said in a statement that “I am proud to join AAG’s efforts. In this tough economic climate, it’s important that America’s seniors know all their options, and have the facts they need to make informed decisions about their financial and retirement futures.”

Celebrity endorsements may make you take a second look at what reverse mortgage lenders are offering. But keep in mind that regardless of which celebrity endorses a reverse loan product, it’s important to do your homework to determine if borrowing money this way is a good move.

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3 Things You Must Do When Getting a Reverse Loan

by Francine Huff
June 10th, 2010

Reverse mortgages allow homeowners to convert home equity to cash. There are no credit checks required and the money can be used for any purpose. Any homeowner aged 62 and up can apply for a reverse loan, but consider the following things you must do first.

  1. Compare deals from several reverse mortgage lenders. It’s important to get the best interest rate possible and competitive closing costs. Usually, the closing costs are included in the loan, which affects the amount of money you receive. A few reverse mortgage lenders have even waived origination fees, so make sure you thoroughly research your options.
  2. Put together a plan for using the proceeds from a reverse mortgage. It does not make sense to borrow money without knowing exactly how you plan to spend it. A reverse mortgage counselor can go through your current expenses to help determine how a reverse loan might fit into your financial plan. Whether you have immediate financial needs or want to tap home equity now and put it in savings for later, come up with a strategy first.
  3. Consider your age and decide if it is too soon to apply for a reverse home mortgage. The amount of money you can borrow with a reverse loan depends upon mortgage rates, a home appraisal, and your age. The older you are, the more money you qualify to borrow. Waiting a few years could result in a higher payout.

Getting a reverse loan is a huge decision. Carefully review reverse mortgage guidelines and look at the pros and cons of borrowing money this way. You can begin shopping for reverse loan quotes here to compare deals and make an informed decisions about borrowing money.

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Most U.S. Housing Markets Are Undervalued

by Francine Huff
June 8th, 2010

Who can forget some of the bidding wars that took place when the housing market was booming. Many home buyers found themselves paying a lot more than they planned, inflating home prices. Property values have tumbled over the past few years, however, resulting in many housing markets becoming undervalued, according to a recent report from IHS Global Insight and PNC Financial Services.

Most Undervalued Markets

Only 87 housing markets are considered overvalued now, with Atlantic City at the top of the list. The next most overvalued housing markets are Wenachee, Wash., and Ocean City, N.J. Las Vegas is the most undervalued market in the list, with homes selling for 41.4% below fair market value. Other housing markets that are undervalued include Vero Beach, Fla., Merced, Calif., and Cape Coral, Fla.

Reverse Mortgage Appraisals

Lower property values could mean that you might not be able to borrow as large with a reverse mortgage as you hope to. The amount you receive with a reverse home mortgage depends upon the property appraisal, as well as your age and current mortgage rates. The higher your home appraisal and the older you are, the money you get.

Comparative Analysis

Take steps to ensure that you get the best property appraisal possible if you plan to apply for a reverse loan. Research your housing market to see what homes in your area are selling for. A real estate agent can help you put together a comparative analysis of homes in your area. Once you apply for a loan the reverse mortgage lender will order a full appraisal.

Discuss any concerns you have about property values in your area with a reverse mortgage counselor. That person can help you run all the numbers to determine how much you can expect to borrow.

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Generation Mortgage Offers Jumbo Reverse Mortgage

by Francine Huff
June 7th, 2010

Generation Mortgage is offering a jumbo reverse mortgage for homes that are worth up to $6 million. The jumbo reverse mortgages cater to seniors with homes valued over $1 million. Proprietary reverse loans, private loans backed by the companies that develop them, have been pretty much nonexistent as the housing market has struggled.

House Rich, Cash Poor

“Many owners of higher-valued homes find themselves in the position of being house rich and cash poor,” Jeff Lewis, chairman of Generation Mortgage, said in a statement. “With our Plus loan, these owners can receive the liquidity they require without having to sell their home or other assets. And, with an improving real estate market, this offering becomes even more attractive.”

Generation Mortgage’s jumbo reverse mortgage is targeted at homeowners with a minimum home value of $500,000. The fixed-rate reverse loans are available in most states. Use a jumbo reverse mortgage calculator to determine how much you might be able to borrow based upon your age, home value, and current interest rates.

Reverse Loan Proceeds

If you intend to cash out home equity with a jumbo reverse mortgage, proceed with caution. While reverse mortgage funds can be used for any purpose, it is crucial to have a spending plan in place before cashing out such large amounts of home equity.

A housing counselor can discuss the pros and cons of reverse mortgages, including various ways you can receive the money. Funds can be received as a lump sum, line of credit, or monthly payments. Choose a counselor who is approved by the Department of Housing and Urban Development (HUD). You have the option of doing counseling sessions face-to-face or by phone.

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Reverse Mortgages and Life Insurance

by Francine Huff
June 3rd, 2010

One reason some people hesitate to get a reverse mortgage is because they don’t want to cut into the amount of inheritance they want to leave to their kids. Once a homeowner dies, reverse mortgage heirs may be left with the task of selling a home to pay off the debt, or letting the mortgage lender sell the home.

Will There Be a Profit?

Depending upon how much equity is in the home, reverse mortgage heirs may end up pocketing a profit on the sale of a home with a reverse mortgage. In other cases, there may be nothing left over after the reverse loan is paid off.

Who Wants Your Home?

A big question you have to consider is whether or not your kids want to keep the home after you pass away. Take the time to discuss your reverse home mortgage with your kids and how it might affect your estate. If you believe that your heirs really want to keep the house, there are a couple of steps you may want to take.

Buy Life Insurance

A common concern people have about getting a reverse mortgage is whether or not their heirs may have enough money to pay off a reverse loan if they want to keep the home. Purchasing a life insurance policy that covers the cost of a reverse loan is one way to ensure that your kids can keep the property. The life insurance policy should name your heirs as beneficiaries and should be a long-term policy.

There are many pieces to the reverse mortgage puzzle. Spend some time looking at Websites about these loans and familiarizing yourself with reverse mortgage guidelines. Then consult with a housing counselor who has passed the HECM exam administered by the Department of Housing and Urban Development (HUD).

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From ARM to Reverse Mortgage

by Francine Huff
June 3rd, 2010

Do you still have an adjustable-rate mortgage (ARM) that you are making monthly payments on? While many people have chosen to avoid ARMs over the past couple years, these loans still exist and there are plenty of homeowners who want them. But if you are concerned about your ARM eventually resetting to a higher rate and have a lot of home equity, a reverse loan might change your financial situation.

Negative Amortization

Reverse mortgages, like interest-only ARMs, have balances that grow over time, or negative amortization. That’s because reverse loans don’t have to be repaid until you move or die, allowing you to keep more of your income for other purposes. Reverse home mortgages also have interest charges that accrue.

Pros and Cons of Reverse Mortgages

You may be wondering why you would want to give up hard-earned home equity. That is certainly a personal decision that only you can make. But among the reasons many seniors choose reverse loans is the relative ease of qualifying since any homeowner over 62 can apply and there is no credit-qualifying. Reverse mortgage proceeds also can be used for any purpose, such as medical costs, traveling, or home repairs.

Some of the drawbacks to reverse home mortgages include higher fees than with traditional mortgages and a possibility that your heirs may have to deal with the loan if you pass away.

The best way to decide if a reverse home mortgage can help you get out of an ARM is to meet with a counselor. Reverse mortgage counselors can fill you in on reverse mortgage guidelines and review your financial situation.

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Reverse Mortgage Payments

by Francine Huff
June 1st, 2010

There are several options for receiving the proceeds from a reverse mortgage. Even if you choose one method of payment now, there is usually flexibility to change it later.

Lump Sum Payment

This is the only option that can’t be changed down the road; you get all of your proceeds at once when you close on your reverse mortgage.

Tenure Payments

With the tenure option, you receive monthly payments for as long as you live in the home. Tenure payments continue even if the amount you receive from a reverse loan is more than the value of your home.

Term Payments

You also have the option of receiving fixed monthly payments for a specific period of time, for example five or ten years. This is useful if you want funds for a limited time. For example, you plan on moving in 5 years, so you opt for 5 years of payments.

Get a Line of Credit

If you aren’t sure when you might need the money, you can choose a line of credit. This allows you to get cash from a reverse home mortgage when you need it. The unused portion of the credit line can continue to grow if the value of your home rises. It could also increase based upon your age.

Get a Combination of Reverse Loan Payments

You can also receive monthly reverse mortgage payments plus a line of credit. The fixed monthly payments may be received for as long as you live in the home or for a specific period of time. You also would have a credit line set up that can be used as needed.

If you aren’t sure of the best way to receive reverse mortgage proceeds, talk with a qualified reverse mortgage counselor. A counselor can discuss reverse mortgage guidelines and help you decide if getting a loan suits your financial situation.

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