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

The news headlines have been screaming impending castrophe for the past 2 weeks- Fannie, Freddie, AIG, Lehman, and WAMU’s failure on Thursday. When is it going to end? It could get worse say some while others believe its an opportunity for the Fed and Treasury to make money on the $700 billion plan. In the midst of this insecurity, the one thing that is becoming evident is that folks at all income levels need more finanical security than ever. A large holder of WAMU notes was a California based pension program. “JPMorgan is getting a steal compared with what they were going to pay,” said Scott Adams, a pension and investment analyst at the American Federation of State, County and Municipal Employees in Oakland, California, which owns WaMu shares. “It’s very tragic.”

Where does that leave the person depending on that part of their retirement if a portion of it is represented by something with those types of question marks surrounding its outcome? One things for sure, the index that most reverse mortgages are based on, the 1 year Treasury yield or CMT is staying very low as investors flock to safer grounds and the 10 year Treasury yield is following suit, currently at floor levels. This means you get maximum equity access for your particular scenario and the interest on the money you use accrues at or near 4.5% AND ITS GUARANTEED by the Federal Government. They WANT to lend you the money.

What’s that mean for the senior who is concerned their retirement portfolio is going to be able to support their current lifestyle? The folks most able to weather this storm have enough of their future income safely and securely allocated in products that aren’t adversely affected by these events. But those on fixed incomes with one or two social security checks coming in each month and that pension tied to these shaky financial institutions are probably looking for someone to choke about right now. If you combine that with Tuesday’s Federal Housing Finance Agency report that July’s home values have dropped another 5.3% and a recent report by the Center for Retirement Research at Boston College says that nearly a third of older households will be less secure in retirement because of the housing bubble, you’ll quickly realize equity from the home may be quickly dwindling and a hedge against that is a reverse mortgage. “Right now, older Americans — those retired or about to retire — are going through hell,” said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. “They’re seeing the value of their 401(k) assets decline and facing risks that assets will go down even more in the future.”

First, the downside if you don’t look toward a reverse mortgage. Your home continues to fall in value and a recent AARP study shows that hits older Americans the hardest, so until the housing market hits botton or stabilizes, how long will that be until they see relief? Credit is almost non-existant right now. Where does a retired, fixed income senior go for a loan in this environment? Your pension could be jeopardized if its tied to some of these failing financial institutions or your portfolio could be taking a real hit right now and is now the time to be tapping into it to fill the gas tank? At some point its not enough each month. Was that your plan?

Now, the upside. Lock in the maximum amount of equity access with a reverse mortgage. The 10 year Treasury yield (CMT) is what helps to determine how much equity you have access to and its at the floor level of 5.5% right now (which includes 2.00 lenders margin), and it won’t go lower. Once the loan is in place, you are guaranteed access to the net principle limit upon closing your loan. If your home value decreases, your access will actually go up if you put the equity access into the credit line function of the reverse mortgage. If you had access to a reverse mortgage credit line of $150,000 in a $250,000 home in July and your home value dropped 5% to $237,500 in Sept, your $150,000 credit line growth was about $1125 or 2 months worth the current rate of 4.5% (or $6750 a year, can your CD do that? Tax free?). Don’t take the reverse mortgage and wait another couple months and your home is now worth less and your access to equity will be less as well and you’ll have missed out on 4.5% credit line growth. If this financial tidal wave subsides and you retained the reverse mortgage and your home value starts to increase, not only does your credit line growth continue but your remaining equity increases as well if you took out the reverse mortgage.

The brainacs on Wall Street don’t know which way this wave is rolling, do you risk it getting worse or do you lock in now?

I came across this series of thoughtful posts by a young couple planning their own [tag]future retirement[/tag]. I found it interesting reading and was encouraged that “30-somethings” are starting to weigh the pros and cons of [tag]reverse mortgages[/tag] in their future plans:

If we use a reverse mortgage we can stay right where we are but at the risk of never being able to move. For example, let’s say we have taken out a reverse mortgage. All the money we are lent earns interest which is due back to the lender. But the interest is secured against the equity of the house. The good news is that if the amount we owe exceeds the value of the house the lender looses, a reverse mortgage only allows the lender to get the equity in the house and that’s it. But interest is due on all money lent out under a reverse mortgage and that interest is charged against the equity in the house. The end result is that a reverse mortgage can very quickly eat up all the equity in the house. So if we decide we want to move, for whatever reason, we can easily find ourselves with no equity left in the house and so no funds with which to move. In a very real sense we end up prisoners in our own home.