By Manuel Tovar, August 11 – Hispanic Solutions Group
Hispanic Solutions Group It reaches them all the details that the consumer must take into consideration before contracting a reverse mortgage.
Senior housing wealth hit a record $ 8.05 trillion to close 2020, posting an increase of $ 234 billion, or 3%, quarter-over-quarter, according to recent figures released by the National Association of Mortgage Lenders
The NRMLA He described the rise as primarily driven by an estimated $ 261 billion, or 2.7%, increase in the value of seniors’ homes. This growth, however, was offset by a jump of $ 27 billion, or $ 1.5%, in senior mortgage debt. “Reverse mortgages provide a strategic retirement option for older homeowners of all income levels,” said Steve Irwin, president of NRMLA, in a recent statement “Reverse mortgages allow people to pay for home care and other services that allow them to age on the spot or provide an alternative to selling assets for retirement after a market downturn. While a reverse mortgage is not for everyone, it can provide the financial security many people seek in retirement. “
Despite this record rise in home equity for seniors, the popularity of reverse mortgages remains low for older Americans. In 2020, only 42,000 Home Equity Conversion Mortgages (HECMs) were sold, down by half since 2010, according to data from the Department of Housing and Urban Development (HUD) from USA Obtained by the Center for Retirement Research (CRR) at Boston College.
Citing a 2017 report from the Consumer Financial Protection Office (CFPB), the CRR noted that one possible reason for the decline is that reverse mortgages are not in line with the plans many seniors may have for their properties. “A reverse mortgage reduces the equity that homeowners have in their home,” the report says. “Homeowners who want to sell their homes after taking out a reverse mortgage are particularly at risk because the loan balance is likely to grow faster than the value of their homes will appreciate. This could limit options for moving or handling a financial shock. “
What should homeowners consider before taking out a reverse mortgage?
A reverse mortgage is designed for retirement-age homeowners who have paid off their mortgage or have built up a large amount of equity in their homes. This type of mortgage is aimed at homeowners who want to take advantage of their home equity to access a fixed monthly payment, a line of credit, or a combination of both, without losing ownership of their properties.
Reverse mortgages are often tax-free, and repayments are deferred until the owner moves in, sells the home, cannot pay property taxes or insurance, or passes away. After which, the property is sold and any excess passes to the owner or his heirs.
There are three types of reverse mortgages, according to Federal Trade Commission.
1. Single Purpose Reverse Mortgage
This type of loan is provided by government agencies and non-profit organizations and is the least expensive of all the reverse mortgage options. It is designed for a purpose specified by the lender, which may include home repairs and renovations and property tax payments. Many low- or moderate-income homeowners may qualify for a single-purpose reverse mortgage.
2. Patented reverse mortgage
Proprietary reverse mortgages are provided by private lenders and do not come with the restrictions normally attached to single-purpose reverse mortgages. This option is suitable for high-value property owners who want access to a substantial amount of cash.
3. Home Equity Conversion Mortgage (HECM)
HECMs are federally insured reverse mortgages backed by HUD and can be used for any purpose. As of last year, HECM’s borrowing limit was set at $ 765,600. However, the amount a homeowner can borrow depends on a number of factors, including the borrower’s age, the home’s appraised value, current interest rates, and the borrower’s willingness and ability to pay property taxes and owner’s insurance.
Specialist Jessica Aliaga noted that while reverse mortgages are a good way to earn extra income for retirement, they may not be right for everyone. The personal finance expert added that reverse mortgages are not ideal for homeowners who want to bequeath their homes to their children. He also said, “Remember, the mortgage is getting bigger,” “When you die, or when you move into a nursing home, someone will have to pay that mortgage if they want to keep the house in the family … A reverse mortgage is great for someone who needs extra money and doesn’t really care about leaving the house to their heirs. “Finally, the personal finance expert said,” My suggestion to anyone considering a reverse mortgage is to get advice first, “he said. “
What are the alternatives to a reverse mortgage?
In a discussion guide, the CFPB set out some alternatives for homeowners who may feel that a reverse mortgage is not the right option based on their personal needs and financial situation.
1. Mortgage refinancing
Refinancing with a new traditional mortgage allows borrowers to lower their monthly payments, especially now that interest rates are falling to record lows. This option can also allow homeowners to save cash over the life of the loan, helping them build home equity more quickly. However, one possible downside is that a good credit score (at least 620) is often a requirement for refinancing, and an even higher credit score (at least 720) is needed to access the best interest rates. Homeowners also need sufficient income to be able to pay monthly repayments, which can prevent many retirees from taking this route.
2. Leverage Home Equity
There are two ways that homeowners can access home equity: a home equity loan and a home equity line of credit (HELOC). A home equity loan allows borrowers to access a lump sum against the market value of their home, minus their mortgage balance. This works the same as a traditional fixed-rate mortgage, with homeowners making the necessary repayments, both interest and principal, every month. Meanwhile, a HELOC allows homeowners to borrow and repay, usually a lesser amount, when the need arises. It also gives them the flexibility to reapply for loans as long as they do not exceed the maximum limit of their available capital. Unlike home equity loans,
3. Staff reduction
For homeowners who want to move to a more affordable home, selling can be a good option. Homeowners can use the money from the sale to finance a smaller home that is easier to maintain.
4. Access to government sponsored benefits
Some states offer weatherization programs that allow older, low-income homeowners to stay in their properties through loans, energy improvements, and lower utility bills. Many localities also offer programs to help with property taxes.
5. Waiting for the right moment
In some cases, taking a reverse mortgage may not be ideal at this time. The landlord may have reached old age and plan to stay in the home much longer. For them, it makes more sense to wait for their personal and financial needs to change before considering a reverse mortgage.
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