REVERSE MORTGAGE INFORMATION: Tools, News and Resources to Help Seniors Decide

If someone asked you how you could increase your cash flow right now in this market place, what would or could you do?

You could cash in some of your retirement portfolio: you would be taxed on the money you took from your portfolio and when the market does come back, your reduced principle would now be hindered in its attempt to meet the goals you had expected when you first put it together. So taxes and slower growth potential can hinder that option.

What if you don’t have a retirement portfolio?

You could sell your home and take the cash to buy a less expensive house or rent: you would have to pay real estate commissions (3-6%), moving fees, staging and prep fees, where do you put the keepsakes that don’t fit in a smaller place, taxes, inheritance taxes, etc, Will you be able to sell the home for the price you believe its worth, what if the home across the street was a distressed sale, it will bring down the value of your home as well. You could leave the home alone and wait for the market to come back. Maybe there’s no way you can sell, maybe it carries too much of an emotional connection to leave it. So emotional attachment can hinder that option.

You could cash in your life insurance through a life settlement or your could look into a reverse mortgage. Even with the life insurance, something that seniors are increasingly finding is that when they purchased life insurance policies years ago and expected dividends to cover premiums, they were not covering the premiums because the interest rates have fallen. Then premiums may have risen, or cash surrender values may be eaten up faster than anticipated to pay premiums and policy owners have to dip into their pockets to pay further premiums or the policy could lapse. What to do?

If you don’t have a life insurance policy with significant cash value but own your home and have equity in your home, you just found a way to increase your cash flow by a significant amount.

How much can you get from a reverse mortgage? It depends on your home’s value, the age of the youngest borrower (over 62) and the lowest expected rate. Someone 75 years old living in a $400,000 home could get somewhere around $263,000 out of that home in any form they chose, either as a monthly payment until they move or pass away ($1760 a month in this case) or leave the money in a credit line and take from it when you need the money while it continues to grow in value. Maybe they had an $80,000 mortgage that they took to put a sunroom on the back of the house and pay off some credit card bills. That leaves them with $183,000 in a credit line that could grow $9,000 the first year or to $230,000 in 5 years. The growth is guaranteed, and that growth is based on almost historically low reverse mortgage rates. Should the rates increase, the growth will increase. Has your financial planner talked to you about that kind of growth while the bottom is falling out of the market and your pension is at risk? And what about your home value? If you were waiting until home prices came back, you could still secure the reverse mortgage and grow your credit line money, regardless if the value continued to decline and if the home value does increase, you get the credit line growth and you increase your net home equity should you want to sell or refinance down the road but you are locking in your home’s value at this time with the reverse mortage and you can’t get a value lock anyway else unless you sell (and we talked about that already).

Oh, by the way, there are no taxes on this income. No taxes on the growth. None.

Lets go back to that scenario above where the person sees $9,000 a year growth and the principle doesn’t decline but they no longer have that $430 a month mortgage payment on the $80,000. That person could continue to pay the long term care bills, they could continue to pay the life insurance premiums or put money toward the college tuition program for the grandchildren. Maybe they already bring in $5000 a month from 2 social securities and an annuity. Now they have another $9,000 a year to add to that. They go from $60,000 a year to $69,000 a year but they have decreased their out of pocket costs by $5160 (430 x 12) so they are cash flow positive $14,160 or almost a 25% increase in cash flow. If they were making less, the cash flow increase would be more. Its that easy. They get to enjoy the things they thought they could enjoy when they began planning for retirement years and years ago. If you sit around and worry about what you’re going to have to cut so that you can just barely make ends meet in this very difficult time of our lives, does that help anything? Isn’t it about your quality of life at this point? I’m not advocating blowing it all on the fancy car or the round-the-world trip but if you have a means to enjoy life should you put it off until its too late or put yourself into a position to take advantage of every opportunity. A reverse mortgage gives you that opportunity.

Its your house, its your money and its your life.

The fixed rates on HECM reverse mortgages have rapidly decreased in past couple of weeks. A month ago, the rates were in the low 7s, and today are in the high 5′s, almost a 30% decrease. The cash yield for a 70 year old in a $300,000 Washington, DC home would be $8000 less on a 5.91% fixed rate than the current HECM 200 yield at the 5.61% expected rate. One of the potential draw backs of the Fixed rate HECM has always been the higher rate and the fact that you have to take the lump sum at closing. In situations where the client is paying off an existing forward mortgage of similar amount with a higher rate, this is a great hedge against future rate increases on the CMT or LIBOR. So if that same someone is concerned about CMT or LIBOR rates increasing into the 4s or 5s again, the Fixed rate HECM should be considered.

Its really not that complicated. Right now, the CMT is providing a higher cash yield and higher credit line growth with the HECM 175 and HECM 200 but the LIBOR based product is at a lower margin (125, 137.5 or 150), so any future unpaid balance would not accumulate interest as fast where the margin was less. It comes down to “pay me now, or pay me later”.

Speaking of pay me now, this week saw another of the large proprietary jumbo programs go away as the Metlife owned Everbank Reverse Mortgage discontinued their RevSelect program for jumbo reverse mortgages. There may be one still standing, but those using it have not been bragging about their yields or the ease of getting them submitted and approved. Countrywide is still offering their SimpleEquity program but their yield has also drastically dropped and in most cases, the HECM is providing better cash yields than their jumbo product which is ANOTHER reason the FHA Modernization Bill needs to more quickly move into place. A conference call from a month ago between NRMLA and HUD discussed the possibility that we won’t see lending limits changed until January 2009. That leaves a LOT of seniors without the ability to get out from under higher adjusting rates on their regular mortgages and leaving them with cash flow issues during a time where their retirement portfolios are taking it on the chin.

The reverse mortgage is a prime product to alleviate that cash flow concern and the rates are favorable across the board for higher yield and less interest accrual on balances where even some with deep pockets don’t readily have access to cash.

The days of borrowing against ever-rising home equity and having home price appreciation cancel out the pain of loan interest costs appear to be over. Reverse mortgages are often described as “rising debt, falling equity loans”. Yet, for several years reverse mortgage borrowers in many parts of the country have enjoyed a “rising debt, rising equity” environment with home equity growth far outpacing the interest accruing on reverse mortgage debt.

Each quarter we compare the rates of housing value growth with average interest rates for HECM reverse mortgages over the comparable one- and five-year periods. The difference (variance) provides a simple measure of the best (and worst) areas for reverse mortgages borrowers. We call this the Reverse Mortgage Friendliness Index. (more…)

Below are some frequently asked questions and answers about reverse mortgage rates and fees. In addition to these FAQ’s, we have questions and answers focusing on other reverse mortgage topics:

Reverse Mortgage Basics

Reverse Mortgages and Taxes

Reverse Mortgage Counseling

Questions From Visitors

If you have questions about reverse mortgages not included here, you can use the form at the bottom to submit it! We’ll do our best to get you a prompt and accurate reply.

[faq summary Reverse Mortgage Rates and Fees]

Reverse Mortgage Rates and Fees Questions and Answers

[faq list Reverse Mortgage Rates and Fees]

[faq ask Reverse Mortgage Rates and Fees]

The Office of Federal Housing Enterprise Oversight (OFHEO) has released its Housing Price Index (HPI) for the quarter ended December 31, 2006. The HPI is a measure of the movement of single-family house prices around the country.

We use data from the HPI to construct the HECM Rate Variance Tool. This tool simply compares Housing Price Index changes to the average rate charged on HECM reverse mortgage loans for the same period. This guidepost provides reverse mortgage borrowers and potential borrowers with a guidepost as to how “reverse mortgage friendly” their local community is.

Areas showing large positive variances area communities where home values rose at a faster rate than the average inteest charged on a HECM monthly-adjusting loan for the same period of time. Low or negative variances indicate communities where net home equity is being diminished not only by a growing reverse mortgage balances, but by stagnant or declining home values.

We believe five-year data provides a better guidepost of the “reverse mortgage friendliness” of any given area since year-to-year abberations are smoothed. Based on the just released OFHEO data, here are the Top 10 and Bottom 10 Reverse Mortgage Friendly housing markets:

Reverse mortgage interest rates receded across the board with the most recent rate adjustments annoiunced by the Fed. Rates on the HECM monthly- and annual-adjusting loans, together with the Fannie Mae HomeKeeper reverse mortgage all tumbled:

Of course, the news on reverse mortgage interest rates got even better with the announcement that Wells Fargo (the largest reverse mortgage lender) has joined BNY Mortgage in lowering the margin on monthly-adjusting HECM loans from 1.50% to 1.00%. The margin cuts by these two major lenders have set a new standard for monitoring reverse mortgage rates. In coming weeks, we will treat the lower-margin products as the standard HECM product.

[tag]Reverse mortgages[/tag] are specialized [tag]mortgage products[/tag] available only to [tag]senior citizen[/tag] homeowners. HECMs are the most popular type of reverse mortgage. Interest rates for both annual- and monthly- adjusting HECM loans are indexed to the one-year constant maturity [tag]US Treasury rate[/tag].

Under a reverse mortgage, the lender makes loan payments to the borrower and the loan is repaid when the house is sold or the homeowner dies. The monthly or annually adjusting interest rate determines how fast the loan balance grows.

Visit our reverse mortgage interest rate tool for further information and analysis.

Click on a state to see the variance between growth in home prices compared to the interest rates paid on HECM (monthly-adjusting) reverse mortgage loans. Some metropolitan areas straddle state boundaries. In these cases, we placed the area in the state having the largest city include in the area (e.g. Louisville-Jefferson County, KY-IN is found under Kentucky).

In general, higher positive variances indicate that home values rose at a faster rate than the HECM monthly-adjusting loan rate for the same period of time. Conversely, low or negative variances should be reason for concern since this could mean your net home equity is being diminished not only by a growing reverse mortgage balance, but by stagnant or declining home values. Five-year data likely provides a more reliable indication of the "reverse mortgage friendliness" of any given area since year-to-year data abberations are smoothed.

As with any such tool, use only as a guidepost. Individual neighborhoods (even indiviual homes) can appreciate or depreciate at rates much different than the overall community. Also, there are many complex aspects to reverse mortgages not accounted for here.