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.

Should you get a reverse mortgage or would you be better off to just use your savings?

If you are considering a reverse mortgage, you will have looked at your savings, stocks, bonds and other liquid investments. But you may have some concerns about using those reserves. Are there ample funds to serve your purposes? What are the tax consequences for both you and your heirs of tapping those funds? If it is your heirs or other relatives who might be providing the funds, what do they need to consider?

One of the deciding factors in choosing whether or not to tap into your nest egg may not only be how long those funds will last you, but rather, how much they will cost you or your heirs.

The first questions to answer are:
1. How much money do I need?
2. Over what time period do I need it (do you need $1000 extra per month to cover your bills; or do you just need $20,000 one time to fix your roof)?
3. Given how much money I have, how long will it last and how much in reserve will I have left over?

I’ll write more on this topic tomorrow.

The following headline was sent in an email to mortgage brokers this morning from a major reverse mortgage lender:

10,000 Americans Are Turning 62 Everyday!
With a current market penetration of less than 2%, the Reverse Mortgage industry is taking off. Get in on the ground floor . . .

Sounds a bit like the great California gold rush of the mid-1800’s. Or perhaps like the great California home mortgage refinance boom of the early 2000’s.

Since 62 is the minimum age for the reverse mortgage, an additional 10,000 people per day being added to the market for potential reverse mortgage candidates certainly sounds like the gravy train that all mortgage brokers should not miss. But there’s a lot more to this than meets the eye.

How many of those who are newly 62 have at least 70% equity in their homes? That’s about what it takes to qualify for a reverse mortgage in California. Who has that much equity? It’s anyone’s guess as to the percentages, but it is highly probably that the majority of homeowners turning 62 have either bought their California homes recently with a large mortgage or have cashed out much of their home equity through refinancing.

And of that now dramatically smaller group, how many actually need a reverse mortgage in California? Homeowners do not get a reverse mortgage unless they have real reason. Some want to get rid of their mortgage payment for the rest of their lives. Others want a line of credit with no payment obligations so they can get a new roof or remodel the kitchen. But without a motivating factor, people do not change the status quo.

Still, 10,000 people per day is a huge number. Some of them will be good candidates for the California reverse mortgage. But will it be the next gold rush or home mortgage refinance boom? Only time will tell.