Does A Reverse Mortgage Equal A Loss Of Control?

As a reverse mortgage loan officer in California, I am constantly amazed by seniors who are under the impression that a reverse mortgage will make them lose their home. However, I am sympathetic to their concern because, in the ’70s and ’80s, there were reverse mortgages that were almost like giving up title to your home.

This article addresses the common concern that many who are unfamiliar with the modern reverse mortgage have: “Am I just signing over the title to my home to the bank?”

For many people, hearing “reverse mortgage” make them think of a cartoonish bank manager, laughing his way back to the bank as he carries the deed to a poor old lady’s home. What will happen to her? How will she pay her bills? That mean banker just took away the home from another innocent victim!

Fortunately, with the modern reverse mortgage, such a scene could not be farther from reality. Reverse mortgages in California and other states are regulated by the Department of Housing and Urban Development (HUD). HUD now issues the rules for the most popular reverse mortgage programs, and the rest of them copy those programs to a large extent. Early reverse mortgage programs that were not subject to HUD’s scrutiny did in fact share some equity with the lender, but few of those programs remain today.

The majority of reverse mortgages today are the FHA (HUD) Home Equity Conversion Mortgage, or HECM. With HUD making the rules, and the Federal Housing Authority (FHA) insuring it, the HECM is another government assistance program for those over 62 years old, such as Social Security or Medicare. The difference is that the HECM is not funded by other people’s payroll taxes, but is funded by the senior’s home equity, which of course only the senior uses for their own benefit. As is common to all FHA-sponsored mortgage programs, reverse mortgages are obtained through FHA-approved lenders, such as FutureSafe Financial in California.

Reverse mortgages are fair and simple exchanges: the bank lends money to the homeowner (the “reverse” part) in exchange for a mortgage on the home. A mortgage is the only way that the lender can ensure that it is repaid. This type of mortgage allows the bank to be repaid only after the homeowner passes away or moves out. At that point the lender collects only the money that it lent to the senior.

Of course, there is a trade off, or at least an exchange, to the transaction. The senior homeowner will have less equity in the future than they otherwise would have had without the reverse mortgage. That does not however, mean that the equity in the home will be depleted, or even necessarily decline. In many cases, modest home price appreciation will out pace the amount of equity that the senior uses. With the promise of no mortgage payments for as long as the senior lives in the home, the exchange may well be worth it.

As you probably now understand, seniors do not relinquish any control over their home by obtaining a reverse mortgage. The reverse mortgage is simply a financial tool that has benefits and trade offs. Every senior homeowner in California should evaluate it based upon their own situation. If we can be of any help in this regard, please do not hesitate to contact us.

Reverse Mortgage – Reverse your Monthly Mortgage Payment

One of the most frequent questions that we receive when assisting with Reverse Mortgages is, “If I already have a mortgage, can I still do a Reverse Mortgage?” The consensus seems to be that most people believe the answer to this questions is no. In reality, however, the Reverse Mortgage is a system that allows the borrower to reverse their mortgage payment. Instead of paying from out of their pockets every month, the borrower uses a Reverse Mortgage to end their mortgage payments forever.

Now because the Reverse Mortgage is a Federally guaranteed and regulated program, there are some limits that should be talk about with the Reverse Mortgage. One is the fact the Reverse Mortgage is designed to utilize the equity in the home, there are limits to the amount of money that a Reverse Mortgage can produce, and of course, how much mortgage can be paid off. A good way to know if a Reverse Mortgage will perform efficiently for you is first judge whether or not your current mortgage is under 70% of your home’s appraised value. This is the maximum lending ceiling for most cases. A Reverse Mortgage Lender will provide the exact figures.

Next, the money that you will receive from a Reverse Mortgage MUST go towards paying off your mortgage. Any money that is left over will be available to you with no restrictions, but only after your current mortgage is paid off in full. This should be a goal for Reverse Mortgage applicants who have a large first mortgage or home-equity loan. An obvious benefit of using the Reverse Mortgage to remove the current mortgage is the added income you will receive from removing your monthly mortgage payments. Reverse Mortgages never require you to make a monthly payment for the rest of your life, while you are a resident of the home.

The Reverse Mortgage is a product that is useful to remove monthly payments on credit card debts, medicine, and medical bills. The idea behind the Reverse Mortgage originated in Europe, and has been the most popular senior financial vehicle in England, Germany, France, and the Scandinavian nations for the last 35 years. Although the United States has only perfected the safety and administration of the Reverse Mortgage in the last 15 years, its popularity has exploded in the last decade. It is at a point now that we are experiencing a 200% growth from each year to the next in the number of seniors around the country joining the Reverse Mortgage program.

With social security and Medicare benefits not providing the amount of income that seniors expected to last them through their retirement, Reverse Mortgage are a tax-free, safe, and minimal out-of-pocket-cost strategy that does not affect any government benefits or income, protects the home from default and foreclosure, and relives the senior of the stress of monthly mortgage payments. Most people who do a Reverse Mortgage are ready to enjoy their retirement, travel, and “Do Stuff!” This is the reason the Reverse Mortgage is now becoming the one of the most popular senior financial vehicles, not in Europe, but in the United States.

Reverse Mortgage Appraisal Values in a Tough Economy

One of the major factors affecting Reverse Mortgages in today’s violent and insecure market is the value of appraisals. This is one of the largest hurdles to face in the Mortgage Crisis that is affecting the Economy in the United States and the world economy as well. In this article we will discuss the impact of appraisal values on Reverse Mortgages, the best way to ensure that you are making the correct decision when getting a Reverse Mortgage in these turbulent economic times, and the steps to take when evaluating what to expect from your Reverse Mortgage appraisal.

Even in a time of economic crisis, the evaluation of how to judge an appraisal value’s best effectiveness will always vary. Said another way, if appraisal values are high or low, each specific situation will dictate how to view the usefulness of high or low appraisal values. For example, a person has little to no current mortgage on her home. Getting a Reverse Mortgage now will benefit her more than when appraisal values are high, and this due to several factors. Right now, interest rates for Reverse Mortgages are the lowest in history. If you do a Reverse Mortgage today, the interest charge on your loan will be thousands of dollars less than a year or two ago. Concordantly, because appraisal values are more than likely to come in low now but down the road a few years increase, the appreciation that you will enjoy can be significant and will allow you to take more money safely out your home in the future.

So we come to how best to decide whether a Reverse Mortgage is right for you at this time and in this economic aversion to high appraisal values. To know when the time is right will depend on several factors. One, what is your current financial situation and do you need a Reverse Mortgage? A Reverse Mortgage is a federally sponsored, senior loan that is designed to allow a senior to safely extract equity from their home without having to impact investments or diminishing monthly income by adding another costly loan payment. The Reverse Mortgage is a tool to provide investment capital, pay off costly debts, or secure funds for the increased enjoyment of your retirement. So if you want to fund a future mutual fund or a life insurance policy, want to a pay off your Master Card or American Express, or if you want to finally go on a trip around the world, this may be a good time to look into a Reverse Mortgage.

Of course that is the case in any economic time but this time especially, with the economy at the point that it is now, a Reverse Mortgage can be more useful that ever in securing these things that you want or need. For one, interest rates are as low as they will ever be, and soon they will begin to go back up. However, the good thing about this is that any rising in the interest rate will be accompanied by an increase in the appreciation rate. If you choose to move forward now, while appraisal values are so low, when they go back up your home value will increase. When your home value increases, the actual cost of your Reverse Mortgage goes down. It, in effect, becomes less expensive. When looking at these factors, this could be a fantastic time to do a Reverse Mortgage. The problem that you will run into when looking at a Reverse Mortgage in this economic situation will be the amount of your current mortgage. It will still be necessary to have a mortgage balance that is around 60% of the home value. The fact is that appraisals are coming in so low; it may preclude you from being able to complete the transaction.

If you are evaluating what to expect from an appraisal in today’s turbulent market, you will have to get a handle of what kind of affect the mortgage crisis is having your area. In some of the most affected areas, appraisal values are down as much as 50% from one year ago. For these areas, with the way that mortgage were structured in the recent past (e.g. 5 year ARM loans with balloon payments), many people are finding that that home value is now lower than the amount they owe on their home! This is not uncommon. To get the best idea of what your area is doing in regards to appraisals, and to get a good idea of what your home will appraise for, you must look at recent sales. In particular, look at foreclosure sales, because they will be used in your future appraisal for your Reverse Mortgage.