Baby boomers, inadequate retirement funding, and issues within the traditional mortgage market created a market that’s currently infatuated with the securing of reverse mortgage products to senior citizen homeowners.
To show just how popular these loans are, Federally-insured Home Equity Conversion Mortgages (HECMs) are the predominant type of reverse mortgage in the U.S and have doubled in origination since 2005. Even more telling is that about two-thirds of the total HECM reverse mortgages ever issued have originated in the last two years.
Reverse mortgages are only available to homeowners age 62 and older who have paid off their mortgage or have only a small mortgage balance remaining. The sales pitch for these loans is enticing: tax-free retirement income for as long as you own the home – even for life; no monthly loan payments; no repayments until the home is sold, and payment options flexible enough to meet any need. In many cases a reverse mortgage look like the ideal tool for senior homeowners.
Though such luxurious benefits don’t come without a few drawbacks. Up front closing costs can sometimes climb to $20,000 or more. Combine this with the regular interest that accrues on the loan balance and second mortgages begin to look much less appealing. To spread these costs out and make the cost of borrowing reasonable it is imperative that the borrower be confident in their ability to remain in the home for at least 5-7. Government data shows that most HECMs are paid off in seven years or less.
Despite the cons of a second mortgage, it still appeals to many senior citizens. But before pursuing such a loan, consider the alternatives to a second mortgage.
- Intra-Family Loan
In such a loan, a friend, relative, or acquaintance with deep pockets takes the place of the bank.
Instead of a bank lending you retirement funds in exchange for a lien on the house, structure an arrangement with a relative or friend to lend you the money instead – collateralized with your
home, of course. In this way you can avoid most of the up front costs and have more flexibility to set interest rates and loan terms.
- Price Appreciation Agreement
Certain firms will give you money today in exchange for an “equity-share” in the future appreciation of your home’s value. These programs are usually aimed at higher value homes (over $500,000) and may only be available in areas of the country with a record of property value growth. The chief benefit of this programs is that you may be able to tap into your equity without the high upfront costs associated with a reverse mortgage. The drawback is that it could cost you substantially more in the long run in the form of foregone home appreciation.
- Home Equity Line of Credit (HELOC)
A reverse mortgages is a sensible option if the homeowner is able to remain the home for seven years or more. Yet the reality is that more than half of all HECM reverse mortgages terminate in less than seven years. To finance short and intermediate cash needs, a HELOC loan may provide a more cost-effective way to tap into your home equity. With a HELOC, closing costs are typically nominal (occasionally zero). Though there are two major downsides. One is that there are monthly loan payments required and the other is that you will likely need to show the lender that you have adequate income to make the required loan payments.
- Delay Receipt of Social Security Benefits
The majority of Americans start their reduced social security benefit at the earliest possible age 62. While people may feel it is smart to start collecting the money ASAP, the truth is that Americans are living longer than ever before and the decision to take early social security can cost you several hundred dollars per month for the rest of your life. To counteract such decisions
people in their seventies and eighties often feel a reverse mortgage is needed to close a budget gap.
- Sell and Downsize or Rent
Using home equity to help pay for retirement is an age-old practice. For generations, it was commonplace for retired homeowners to sell their homes and use the money to buy or rent a smaller, more affordable home.
- Deferred Payment Loans
Many states, local governments, and nonprofit organizations sponsor loan programs to financially assist senior homeowners that own property but have little cash. Akin to reverse mortgages, these programs lend money today that is paid back when the senior homeowner sells the home or dies.
There are two major drawbacks of using such a program. The use of loan proceeds is usually restricted to a specific purpose such as home repair and the eligibility may be restricted to seniors qualifying as lower income.
- Other Assets
Home equity is what most Americans consider their most lucrative financial asset. Before cashing in on a reverse mortgage, compare this strategy to other possibilities like selling other financial assets you may own. Stocks and bonds can be turned into cash much more efficiently than home equity can.
Deciding whether to take out a reverse mortgage is an important financial step for both you and you heirs. Be sure to consider the alternatives before making a final decision. To more profoundly understand these financial options, talk to the best mortgage brokers in Minneapolis. The team at Affiliated Mortgage has been serving clients throughout the US for 30 years and can use the know-how they’ve amassed to provide you with perceptive information regarding home finance and the like.
Baby boomers, inadequate retirement funding, and issues within the traditional mortgage market created a market that’s currently infatuated with the securing of reverse mortgage products to senior citizen homeowners.
To show just how popular these loans are, Federally-insured Home Equity Conversion Mortgages (HECMs) are the predominant type of reverse mortgage in the U.S and have doubled in origination since 2005. Even more telling is that about two-thirds of the total HECM reverse mortgages ever issued have originated in the last two years.
Reverse mortgages are only available to homeowners age 62 and older who have paid off their mortgage or have only a small mortgage balance remaining. The sales pitch for these loans is enticing: tax-free retirement income for as long as you own the home – even for life; no monthly loan payments; no repayments until the home is sold, and payment options flexible enough to meet any need. In many cases a reverse mortgage look like the ideal tool for senior homeowners.
Though such luxurious benefits don’t come without a few drawbacks. Up front closing costs can sometimes climb to $20,000 or more. Combine this with the regular interest that accrues on the loan balance and second mortgages begin to look much less appealing. To spread these costs out and make the cost of borrowing reasonable it is imperative that the borrower be confident in their ability to remain in the home for at least 5-7. Government data shows that most HECMs are paid off in seven years or less.
Despite the cons of a second mortgage, it still appeals to many senior citizens. But before pursuing such a loan, consider the alternatives to a second mortgage.
- Intra-Family Loan
In such a loan, a friend, relative, or acquaintance with deep pockets takes the place of the bank.
Instead of a bank lending you retirement funds in exchange for a lien on the house, structure an arrangement with a relative or friend to lend you the money instead – collateralized with your
home, of course. In this way you can avoid most of the up front costs and have more flexibility to set interest rates and loan terms.
- Price Appreciation Agreement
Certain firms will give you money today in exchange for an “equity-share” in the future appreciation of your home’s value. These programs are usually aimed at higher value homes (over $500,000) and may only be available in areas of the country with a record of property value growth. The chief benefit of this programs is that you may be able to tap into your equity without the high upfront costs associated with a reverse mortgage. The drawback is that it could cost you substantially more in the long run in the form of foregone home appreciation.
- Home Equity Line of Credit (HELOC)
A reverse mortgages is a sensible option if the homeowner is able to remain the home for seven years or more. Yet the reality is that more than half of all HECM reverse mortgages terminate in less than seven years. To finance short and intermediate cash needs, a HELOC loan may provide a more cost-effective way to tap into your home equity. With a HELOC, closing costs are typically nominal (occasionally zero). Though there are two major downsides. One is that there are monthly loan payments required and the other is that you will likely need to show the lender that you have adequate income to make the required loan payments.
- Delay Receipt of Social Security Benefits
The majority of Americans start their reduced social security benefit at the earliest possible age 62. While people may feel it is smart to start collecting the money ASAP, the truth is that Americans are living longer than ever before and the decision to take early social security can cost you several hundred dollars per month for the rest of your life. To counteract such decisions
people in their seventies and eighties often feel a reverse mortgage is needed to close a budget gap.
- Sell and Downsize or Rent
Using home equity to help pay for retirement is an age-old practice. For generations, it was commonplace for retired homeowners to sell their homes and use the money to buy or rent a smaller, more affordable home.
- Deferred Payment Loans
Many states, local governments, and nonprofit organizations sponsor loan programs to financially assist senior homeowners that own property but have little cash. Akin to reverse mortgages, these programs lend money today that is paid back when the senior homeowner sells the home or dies.
There are two major drawbacks of using such a program. The use of loan proceeds is usually restricted to a specific purpose such as home repair and the eligibility may be restricted to seniors qualifying as lower income.
- Other Assets
Home equity is what most Americans consider their most lucrative financial asset. Before cashing in on a reverse mortgage, compare this strategy to other possibilities like selling other financial assets you may own. Stocks and bonds can be turned into cash much more efficiently than home equity can.
Deciding whether to take out a reverse mortgage is an important financial step for both you and you heirs. Be sure to consider the alternatives before making a final decision. To more profoundly understand these financial options, talk to the best mortgage brokers in Minneapolis. The team at Affiliated Mortgage has been serving clients throughout the US for 30 years and can use the know-how they’ve amassed to provide you with perceptive information regarding home finance and the like.
A Little About Affiliated Mortgage
A Little About Affiliated Mortgage
© 2019 Affiliated Mortgage, LLC. NMLS #14211: AZ NMLS#0947858. All Rights Reserved. Affiliated Mortgage, LLC is a Division of Lend Smart Mortgage NMLS #4474
Developed and designed by https://blairallenagency.com
The post 7 Alternatives To Consider Before Securing A Reverse Mortgage appeared first on Affiliated Mortgage.
No comments:
Post a Comment