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

The new reverse mortgage lending limits were announced today by FHA Commissioner, Brian Montgomery. The new nationwide limit is to be $417,000 and the target effective date is November 1st. That’s a target date, not a set deadline.

This is really important information and may come as a relief to many senior households that are concerned about their ability to obtain access to cash or credit in this very troubled marketplace. The first group that will see this as great news were the folks that looked into getting a reverse mortgage but were short to close if their county lending limit was limiting their access, meaning they would have needed to come to the closing with cash; something they were short of to begin with. Roughly 60% of seniors originating reverse mortgages are paying off other mortgage debt to free up monthly cash flow. Some found that falling home prices did not allow them enough equity to pay their old mortgage off and they continued to suffer while this bill was negotiated knowing there was a silver lining in the cloud…behind a cloud.

If your home is worth more than the current limits for your county, you could be looking at quite an increase in available access to cash from your home’s equity.

Some examples (shown for illustration purposes only using varying margins):

A 70 year old in a county with FHA lending limit of $248,588 will be able to get access to somewhere around $150,000 if their home is worth more than or equal to the current lending limit. With the new limit they could get access to as much as $260,000 if their home was over the new $417,000 limit. That’s a 73% increase in available to cash to that homeowner.

A 70 year old in a home worth more than the FHA lending limit of $362,790 could see a 15% increase in available access to equity: going from $222,000 to just over $257,000.

Every instance will be different but if your home is worth more than the current FHA county lending limit, you will now have access to additional equity, even for those interested in refinancing reverse mortgages already in place where lending limits were significantly lower than the tentative limit of $417,000.

We’ll keep you updated as more information is made available to the industry. This is very welcome news for those that have been sitting on the fence. This limit increase should also help lock in principle limits in places where home values continue to decrease.

More and more seniors are utilizing reverse mortgages to pay off existing home loans, helping free up monthly cash flow to keep up with ever increasing monthly living expenses. Its not a new phenomenon but one that is far exceeding any other reason for obtaining a reverse mortgage. As the senior homeowner battles increasing fuel and food costs, rising health care costs and the roller coaster pressures on their retirement portfolio, the folks also making monthly mortgage payments are looking for some kind of relief. Recent reports are also showing that a large portion of the retirement ranks do not have sufficient retirement portfolios that allow them to handle any increase in monthly costs. In fact, a large portion don’t have enough, period.

As an example, a 71 year old man with an existing $100,000 mortgage would be paying principle and interest of $615 a month on a 6.25% loan and $5979 a year in interest. They could pay that off with a reverse mortgage and not only keep that $615 each month in their pocket or checkbook but the interest that would accrue on the unpaid balance would be over $1000 less than what they paid out the previous year. That $615 could be the difference in the client keeping the lights on or reducing credit card debt or anything they had to pay off that they couldn’t afford to do before. In addition, they would have access to monthly tenure payments or they could put any remaining equity into the credit line for future purchases or to cover the unanticipated “rainy day”. The credit line on a reverse mortgage grows over time at the prevailing rates, currently in the 4.60% range, not a bad return on YOUR money.

Not only can the reverse mortgage remove the headache of making those pesky monthly payments during retirement years, it can give the homeowner piece of mind that they can increase their monthly cash flow and lower overall interest accrual. With the new housing bill about to go into place, there are still many potential reverse mortgage clients sitting on the fence waiting to pay off home mortgages that do not currently qualify because they owe more than the varying lending limits allow. Those limits range from $200,160 to $362,790 but are set to go to a national limit of $417,000 or higher in some places. As an example, a person in a $300,000 home in a county where the lending limit is $200,160 will see a large increase in the amount of equity they can access and it can be the difference in keeping the home where a subprime loan was set to adjust to an amount the client could no longer afford.

To see the amount of a home mortgage you would be able to pay off, click the “Calculate Benefits” button on the left hand side at www.libertyreverseadvisor.com/rickmcinturff/about.htm.

In a previous post we noted an important fact largely ignored in the plethora of recent books and articles on reverse mortgages: the majority of reverse mortgages (at least HECM reverse mortgages) terminate within seven years of their origination. For many of these borrowers, a standard home equity line of credit loan (HELOC) might have been a more efficient borrowing tool.

Of course no one can predict the future and we suspect many HECM borrowers entered into their loans with thoughts of staying put for ten years or more. But, as noted, data from actual HECM loans reveals that fewer than 50% of HECMs last beyond seven years. For shorter periods such as these, the HELOC option is certainly worth investigating.

How does someone decide which is better for them - HECM reverse mortgage or HELOC? Let’s start by reviewing the the main points that differentiate the two types of home equity borrowing: (more…)

In the past week we’ve seen on a couple of occasions snippets announcing a free downloadable reverse mortgage calculator to help seniors considering a reverse mortgage.

Initially, we were encouraged. Had someone really created a quality open source reverse mortgage calculator that could handle the complexities of reverse mortgages and provide reasonably accurate results? Such a tool could be quite a useful alternative for seniors (more…)

There’s a new player in the world of [tag]reverse mortgage[/tag] calculators and it looks like they have a product that offers some very useful and cool new features. ReverseVision has introduced a graphical reverse [tag]mortgage calculator[/tag] that really helps make the complex dynamics of reverse mortgage loans more understandable to the lay person.

The ReverseVision calculator initially looks and works much the same as the popular Netirement [tag]reverse mortgage calculators[/tag] found at [tag]AARP[/tag], [tag]Wells Fargo[/tag] and numerous other reverse mortgage lender sites. Data input screens are similar to these other calculators and, like the Netirement calculators, side-by-side loan comparisons are limited to the HUD [tag]HECM[/tag] and [tag]Fannie Mae[/tag] HomeKeeper products (Financial Freedom is not included). Numeric results in a few sample calculations came out close to the Netirement calculator results.

But the key value-added feature of ReverseVision’s reverse mortgage calculator are the chart tools. Especially useful is a dynamic pie chart that allows users to “play it forward” with their assumed loan scenarios in one-year or ten-year increments. With this tool, users get a clear graphic representation of how the allocation of loan receipts, fees, accrued interest, and other items change over the life of the loan.

For example, advancing forward one year at a time, you can easily see the point at which accrued interest owed on a hypothetical reverse mortgage loan exceeds the total funds paid out to you.

Perhaps the biggest criticism of the ReverseVision calculator is that it might provide too much information for casual users. For instance, in addition to the pie chart, there are multiple other charts available, some of which seem of limited use. As an example, information on a separate chart showing the decline in home equity over the loan’s life might be more useful if consolidated on the “play it forward” pie chart - as was done with information on rising home value.

Regardless, if you’re surfing the web trying to determine whether a reverse mortgage is right for you, the ReverseVision Graphical Calculator is definitely worth taking a look at.