In 2008, 78 million baby boomers will turn age 62 and
qualify for a reverse mortgage. These seniors have 4
trillion dollars in home equity available to them in an
illiquid asset, their house. In fact, these retirees have
50% of their net worth tied up in their homes. Estimates
indicate that there is a target population of some 15
million senior households that both qualify for and are
good potential candidates for the Department of Housing and
Urban Development's home equity conversion mortgage
(HECM)program. The HECM is when a lender advances, a senior
age 62 or older and a current homeowner, money based on the
houses equity. The senior homeowner can take the cash as a
monthly payment all at once in a single lump sum of cash,
as a regular monthly loan advance or as a credit line that
lets you decide how much cash to use and when to use it.
You may choose any combination of these payment plans also.
The senior homeowner is not required to make any payments
on the loan so long as he or she remains in the house. The
lender collects the overall loan balance'which includes the
accrued interest charges and other servicing charges as
well as the amounts paid out to the senior when the house
is sold or the owner dies.
In the last twelve months annualized 109,000 HECM's were
originated which almost equals the entire amount done the
last 10 years. Why has there been such a resistance to this
product that seems almost to good to be true? There are
some easily discernible reasons that help explain why this
loan has had such a low penetration among its senior
members. The first and most obvious one is the upfront
charges which include FHA mortgage insurance and a two
percent origination fee. There are other closing costs
involved but all of these costs are financed into the loan
with no out of pocket expenses. The whole sub prime mess
has many seniors not trusting any loan company out there
and are even more skeptical of newer programs like these.
There are also some fears that seniors have that make it
very hard to step into a Wisconsin reverse mortgage and I
will go over some of them next. Needless to say if you can
be aware of the many factors that play into this decision
making it may be easier for you to objectively look at a
reverse mortgage and make a better decision of it's
effectiveness for you.
The fear of losing the equity in your house. Seniors grew
up with the American dream of owning a house. They spent
their lives focused on making their home free and clear of
any liens. Paying off the mortgage was priority number one
so it is counter-intuitive to add debt to it. By taking out
a reverse mortgage you would be doing a 360 degree turn and
actually be growing a mortgage versus paying it off. No
matter how much sense a reverse mortgage may seem it will
not make sense to a lot of seniors because of how they were
financially raised.
Another fear seniors have is the complexity of taking out a
Wisconsin reverse mortgage. With the program being so new
and so few taken out there is not a whole lot of
information available to seniors who are looking for more
knowledge. For many people the unknown is the worst of all
fears and will cause hesitation in making decisions. That
is why HUD requires all seniors to participate in
counseling sessions to ensure they understand reverse
mortgages and the process of taking out that kind of
mortgage. The funny thing about that is the well intended
counseling will actually scare off some potential
applicants.
A general fear of having flexibility in a seniors
retirement years is a concern when making this financial
decision. With everything considered a senior who takes out
a reverse mortgage should expect to live in the house for
at least 3 years if not more depending on age and loan
size. Most seniors have an uneasy feeling about the future
and sometimes may be unwilling to commit that far. Death,
serious illness and similar issues weigh heavily on their
minds.
My family wants the house and a Wisconsin reverse mortgage
will not allow for this. We will have to sell the house so
that the reverse mortgage can be paid off. First and
foremost you will have to determine if the kids want the
house or they are going to want to sell it. Normally if the
kids have families and already live in an nice area they
aren't going to want to move. If they do want the house
they can always refinance the house and pay off the reverse
mortgage. Remember it is a non recourse mortgage and you
can't own more than its worth. The children will have many
options available to them.
Seniors remember way back when these reverse mortgages were
first available and the stories that were heard about
people who did reverse mortgages. Lets just say stories
abound about lenders taking advantage of seniors. It was
because of this that HUD started to regulate HECM's and
also insure them. One can argue that these types of
mortgages are actually more safe than any other mortgage.
when you bought your house or refinanced it did you have to
meet a counselor? Most horror stories actually are from
seniors taking out a reverse mortgage and using the funds
into investments and then losing money. The reverse
mortgage is not the fault, it was the adviser who stuck
them in a risky fund.
Reverse mortgages are now just coming into the limelight.
As with most things in life when they are originally
released they have many naysayers. When the 30 year fixed
was first brought out it was until many years later that
the pundits realized it was a good idea. I expect that it
will be a little more time, some more education, and
Wisconsin reverse mortgages will also become a mainstay in
our senior population.
----------------------------------------------------
David Forer is an expert on Wisconsin Reverse Mortgages
with over 15 years experience with credit repair, debt
management, and mortgages for seniors in the state. He has
a free informational e book on Reverse Mortgages at
http://www.wisconsinreversemortgages.net/
this is not a sales site!
No comments:
Post a Comment