Reverse Mortgage Guide

Depending on who you ask, the current mortgage melt-down is destined to last until 2009, 2010 or 2011. I have no idea which projection is correct — if any — but such economic thinking raises an idea, the reverse mortgage as short-term financing.

I’m usually the last person who thinks positively about short-term financing because such loans typically involve balloon payments at the end of the mortgage term. But Freddie Mac today said that a typical 30-year fixed-rate loan has a 5.87 percent rate with .4 points.

At the same time, home values in a lot of markets are stalled or falling, unemployment is up and so it may be one of those unique moments when a short-term loan in the form of HECM financing makes sense.

Yes, there are big fees up front, but if you’re a troubled borrower, over age 62 and struggling with financing problems, maybe a reverse mortgage is a reasonable idea — even on a short-term basis.

Here’s why. Imagine that economists and fortune tellers are right and that the market downturn ends in 2011 or so — three or four years from now. Imagine also that housing prices rise. If you had wanted to sell, would it not be significantly better to sell in a strong market with pent-up demand rather than in a market with weak numbers? Would it not be good to not have a monthly mortgage payment for several years?

I don’t see short-term reverse mortgages as a typical option for many borrowers, but like reverse mortgages themselves this is a niche where someone fits — one which for some borrowers will be better than foreclosure, bankruptcy or selling cheap.

For specifics, speak with a local lender.

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This entry was posted on Thursday, January 10th, 2008 at 5:56 pm and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.