Texas Reverse Mortgage
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According to the San Antonio Express News, Texas may finally catch-up to the rest of the country with respect to reverse mortgage loans for senior citizens:
Texans entitled to the best deal on reverse mortgages
When Texas seniors get reverse mortgages, they choose financial products that make up only 12 percent of the reverse mortgages in the United States.
That’s because lines of credit, the form of reverse mortgage picked 88 percent of the time by American seniors, aren’t available in Texas. But the state’s voters will soon have an opportunity to remedy that situation.
Reverse mortgages allow seniors to sell some or all of their home equity to a lender and receive loans either in a lump sum, monthly payments based on life expectancies, or lines of credit. The seniors remain in their house, and retain title to it, until it is sold to repay the loan.
Lines of credit, however, are a better deal than the other two types of reverse mortgages.
The reason is simple. When senior homeowners establish reverse mortgage lines of credit, they borrow only the money they need when they want it. With a lump-sum option, seniors have to calculate how much they may need and borrow it all up front.
Taking a lump-sum payment can cost consumers far more than the line of credit.
Let’s say a couple, both 70, establish a line of credit using their equity on their $150,000 home. They end up borrowing $10,000 a year on the line of credit for 10 years, borrowing a total of $100,000.
During that time, the interest paid on that $100,000 loan would be $30,785 less than if the couple had borrowed the $100,000 at the beginning.
Of course, the couple also could invest the lump sum for the 10 years, withdrawing money only as they needed it, but they would have to be clever investors to obtain the same $30,785 return.
Reverse mortgage monthly payments, based on life expectancies, function more like annuities and are a good choice for senior homeowners who expect their monthly fixed incomes to fall short of their needs. The longer the seniors live, the more they receive on their home equity.
The point is that Texans deserve the same choices for reverse mortgages that seniors in the rest of the nation enjoy.
That’s why it is vital that all Texas voters vote “yes” on Proposition 7 on the Nov. 8 ballot. The state constitutional amendment simply adds the line-of-credit option to reverse mortgages in Texas, just as Texas voters approved lines of credit to home equity lending in general in 2003.
This new option is important, especially considering that Texas senior homeowners increasingly are acquiring reverse mortgages.
The number of such mortgages has tripled in the past three years, said Scott Norman, president of the Texas Association of Reverse Mortgage Lenders and the state’s representative for Financial Freedom, a California-based reverse mortgage lender.
Norman said 7,500 reverse mortgages will be issued in 2005 alone, and the number would triple in the next three years if voters added lines of credit by approving Proposition 7.
This should be the final constitutional amendment, after three previous ones, that will make reverse mortgages in Texas exactly the same as in the rest of the nation.
It should have happened a long time ago.
We couldn’t agree more. Hopefully, Texas voters will fully understand the issue and vote to make this important change in November.
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