The Equity Gap
April 16th, 2008
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Dennis writes and offers this comment:
“I can tell you from my own experience that the slow down is coming from the fall in the value of homes. The phone is ringing with many homeowners interested but many homeowners do not have enough equity left in their homes to do a reverse mortgage.”
This observation raises an interesting point: The trend in real estate financing during the past few years has been to buy and borrow to the hilt. The result is that many “owners” have little equity in their homes and a growing percentage have none.
The result is that when it becomes possible to refinance, neither the cash nor the equity are available to get a better loan with a lower rate or superior terms. For those who want reverse mortgages, there can also be a problem with insufficient equity.
If there is any good news here it is that some portion of those 62 and older have owned their homes for many years and have significant equity even if local prices are down. In effect, equity equals opportunity, whether someone wants to finance or refinance with a forward loan or a reverse mortgage product.
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April 16th, 2008 at 1:11 pm
Peter, yes many of the seniors have lived in their homes for a long time, but with the “easy money” of the past several years, many of them have taken out the no income-no asset type loans and now they have very little equity left. With the payments being reset now, many seniors can not afford the payments and can’t refinance….and they spent all the equity. What happened to the frugal living of the past?