Reverse-Mortgage-Truth.com

This is the final post in a series.

Most of the time costs associated with the option ARM are greater than those for a reverse mortgage. The closing costs tend to be similar amounts, but the interest rates on option ARMs average about 1% higher. Far more costly is the fact that you must cash out all the money at once from an option ARM rather than being able to take it out of a line of credit on an as-needed basis. The line of credit allows the loan interest to accrue more slowly since you keep the mortgage balance lower for a longer period of time, so that the loan interest accrues against a smaller balance. The option ARM only partially offsets this factor in that the homeowner pays a portion of the interest each month.

Common wisdom would indicate that seniors should look before they leap into an option ARM. It is really designed for working people who are willing to trade some of their equity for the privilege of freeing up some monthly cash flow for a period of time. But reverse mortgages for seniors are a far better choice in most cases.

Over the past 5 years reverse mortgages in California have grown into an accessible and increasingly popular way for seniors to increase their financial means during retirement. Across all areas of California seniors have utilized reverse mortgage programs to accomplish worthwhile purposes such as ridding themselves of their mortgage payment by paying off existing mortgage debt; to make improvements to their home or cover maintenance expenses with a lump sum of cash; to enjoy a more comfortable lifestyle by increasing their monthly stream of income. Seniors have found practically endless uses for the additional funds from a reverse mortgage.

The minimal requirements for reverse mortgages in California have made them relatively easy to obtain. Seniors need only adequate equity in their home to qualify – credit scores, income and other assets do not matter. However, due to declines in the real estate market this past year seniors in some parts of California no longer have the certainty of adequate equity in their homes. As the real estate market in California is now firmly established on a declining path, it is more difficult to qualify for a reverse mortgage because the amount of home equity that seniors have is diminishing. Some parts of the state, however, are faring better than others.

Next we'll focus on San Diego reverse mortgages.

Another possible alternative to the reverse mortgage is to sell the future appreciation of your home. As you probably know, a reverse mortgage allows you to tap your current home equity. You can pull out a lump sum of cash, get a monthly income, a line of credit or a combination of these options. Reverse mortgages are just like a regular mortgage except rather than paying the interest on the loan each month, it is deferred and paid back at a later date. And like a regular mortgage, you must have substantial equity in order to qualify for reverse mortgage (but not income, credit or other assets).

But what if you don’t have the equity that is needed for a reverse mortgage or the qualifications for traditional mortgage, but still need cash? Where there’s a need, there’s usually a solution. Enter the idea of selling your home future appreciation (SFA).

Rather than using your current home equity, an SFA plan taps in your FUTURE equity, not your current equity. But like a reverse mortgage, it does not require any payments and is not even a loan so it carries no interest rate and is not a debt. An investor offers the homeowner 12-15% of the value of their home in exchange for one half of the future appreciation of the home. For example, suppose your home appraised for $600,000 and the investor gave you $90,000. And ten years later, you sold your home for $800, 000. That is appreciation of $200,000 since you made the deal so the investor gets $100,000. Of course, he is betting that your home will appreciate a lot more, but that’s a risk he takes.

An SFA plan is designed for people 65 and over who won’t soon be headed to a nursing home. There are a number of requirements in order to qualify, but credit, assets and income are not on the list! The main thing is that you must be is relatively good health and have at least 30% equity in your home.

With the way the real estate market is going these days, selling your future appreciation may be a reverse mortgage alternative to consider. If you’d like to discuss California reverse mortgages or the SFA plan with me, I’d be happy to help.

Luke Helm
Senior Solutions Specialist
www.reverse-mortgage-info.net

Put Off Making a Decision
Probably the most common decision is to not make one! For fear of making the wrong decision, or sometimes for other reasons, you might think it's better to "wait until later" to get a reverse mortgage.

There are some obvious and not-so-obvious drawbacks this choice. It may be just a matter of time until you run the risk of hitting a money-crisis. You may have a little financial cushion and currently are able to make ends meet. Then an unexpected expense arises - emergency dental work, new and expensive prescription drugs, car or house repairs, or (something positive such as) an opportunity to help the grandkids. Suddenly, for lack of planning ahead, you'll be left with one of the alternatives described above. Or you must make an unpleasant choice: forego that which is much-needed or desired, or deplete the last of your savings or available credit.

There are drawbacks to putting off a reverse mortgage. First, it can take some time to obtain. The average closing time in the industry is 60 to 90 days, but it can go much longer if there are some obstacles. I have seen it take over 6 months in some cases!

More importantly, as interest rates rise, or home values fall, the amount of money available from a new reverse mortgage shrinks. A client of mine lost over $40,000 by waiting just 6 months! The only way of protecting yourself against rising interest rates or falling home values is to apply for the reverse mortgage and lock-in your cash benefit. Once you have applied and after it closes, the amount of money available to you is guaranteed. Your benefits cannot be reduced for rest of your life! Moreover, if the home equity line of credit is chosen, the unused portion starts growing at over 5% (like a savings account) from the beginning, giving you more money the longer you have the reverse mortgage.

You might be putting a reverse mortgage because you think that it will be there when you need it. But this is not necessarily so. Remember that most reverse mortgages are insured by the Federal Housing Authority (FHA), which is run by HUD, and whose activities are regulated by Congress. There is a cap on the total number of reverse mortgages that Congress will allow the FHA to insure. In 2005, the industry ran up against that cap and were almost were forced to stop issuing the Federally-insured reverse mortgage. Fortunately, a temporary increase on the cap was slipped into an appropriations bill by a congressman at the last minute and the reverse mortgage received a new lease of life. A cap remains today and so the availability of the program must be continually re-approved by congress. And with the dramatic increase in the number of reverse mortgages being insured by the FHA, the burden could cause them to stop issuing the HUD/FHA reverse mortgage so it is not there when you need it.

So whether or not you need the money now, in most cases, the earlier you get the reverse mortgage the better off you will be. Thinking, "I'll wait until later" may not be the best decision.

Tomorrow we’ll discuss the potentially most dangerous alternative to the reverse mortgage.