Reverse-Mortgage-Truth.com

The option ARM mortgage has many names, including “pay-option mortgage”, “negative amortization loan”, “pick-a-payment”, or “deferred-interest loan”, to name a few. Similar to the reverse mortgage, it allows a homeowner to pull out a lump sum of equity, while only taking on a relatively small mortgage payment. A few differences are that the homeowner can be of any age, but the money must be taken as a lump sum (no credit lines). Although the interest rate is generally between 6% and 12%, the borrower only makes monthly payments for between 2% and 5% annually of the loan balance. This gets paid monthly (take 2% to 5% and divide by 12). For example, if the payment is 5% and the interest rate is 8% (a common scenario), then the interest that is not being paid is 3%. (8% minus 5%). Similar to a reverse mortgage, the lender allows that 3% of unpaid interest to be repaid at a later date by adding it to the principal balance of the loan. Thus, the loan balance grows over time, even though payments are being made. But there is a limit on how much the loan balance is allowed to grow. Depending upon the lender, once it reaches around 110% to 115% of the original loan balance, a full mortgage payment must be made.

Part 4 will follow in a couple days.

To start, let's define each type of loan. The reverse mortgage is a home loan that allows people over the age of 62 to pull out some of their home equity to use for any purpose that they want. The loan may be kept until the homeowner(s) either sell the home or permanently move out. An aspect of this mortgage that is very appealing for many seniors is it does not require any monthly mortgage payment whatsoever for the life of the loan. A reverse mortgage is similar in many ways to a line of credit in that there is a credit limit and the ability to pull cash out and put it back in. The borrower does not pay the monthly interest that accrues as he/she goes. The lender cannot even ask the homeowner for any payments as long as they live in the home, but instead the interest gets added to the principal balance. At the end, the lender collects the total amount that it has lent to the borrower, which includes principal plus interest.

This is the second post in a series. To be continued . . .

San Diego is one of the hardest-hit markets in California and has seen home values drop by up to 30% in some inland communities. Seniors were once able to qualify for a $300,000 reverse mortgage on a $700,000 home, and now qualify for only $200,000 on their current home value of $500,000. San Diego County is now widely-recognized as a “declining market”, as if declining values weren’t already bad enough. As a result, most California reverse mortgage lenders are automatically reducing the amounts that they will lend on homes in San Diego by 5-6% for their jumbo programs.

Next post will be about Los Angeles.

Info on San Diego Reverse Mortgages

Wow, have interest rates gone up this week! The fixed rate HECM is up 0.3% and the LIBOR-based products are up 0.33%.

Jumbos:
Cash Account Advantage jumbo reverse mortgage: 6.52% (Index is 6 month LIBOR at 3.02% [rounded] plus margin of 3.5%)
Independence Plan 210 jumbo reverse mortgage: 5.12125% (Index is 6 month LIBOR at 3.02125 plus a margin of 2.10%)
Independence Plan 360 jumbo reverse mortgage: 6.62125% (Index is the 6 month LIBOR at 3.02125 plus a margin of 3.6%)

Conforming FHA:
HECM Reverse Mortgage rate: 3.17% (Index is the 1 Year CMT at 1.67% plus a margin of 1.5%)
Fixed rate Reverse Mortgage - HECM: 6.30% to 6.81% (depending on the lender)

Rates are not APR’s and include no closing costs. Click here for a reverse mortgage quote.