Don't get swept away by reverse mortgage hoopla
July 01,2012
Infomercials have been a part of television for as long as many of us can remember. I read the other day that the creator of the Ginzu knives passed away. Is there anyone who doesn't remember the Ginzu knives…"they slice, they dice, they can cut through this can and then cut paper thin slices of this tomato." Must be a remembrance of my childhood. Today's kids remember Billy Mays, the face of "Oxi Clean." Maybe not an infomercial but a presence on television that we all remember.
If you watch television no doubt you have seen Robert Wagner peddling reverse home mortgages. Just the other day, I saw one with Fred Thompson and I hear Henry Winkler is doing them as well.
As Americans get older, reverse mortgages are becoming a much talked about (and well-advertised) buzzword in the world of financial tools that older Americans should consider. Reverse mortgages can provide a stream of cash or access to cash, which retirees typically use to supplement Social Security benefits, help cover medical expenses, make home improvements, travel or any number of needs.
The story behind the actors on television is that reverse mortgages became popular during the beginning of the millennium. This was when housing prices were on an upswing. As the real estate market peaked and then began its downward spiral, reverse mortgages were impacted. They hit a peak in 2009, when nearly 115,000 reverse mortgages were issued. In 2010, that figure fell 31 percent and then by another 7.2 percent in 2011. In the past few years, some of the larger banks and lending institutions such as Bank of America, Wells Fargo and MetLife have pulled out of the reverse mortgage business. Reverse mortgage loans are still readily available to people across the country (as evidenced by the famous celebrities promoting them, for a fee, of course). One of the problems with reverse mortgages is that while they do allow older Americans to stay in their home and get the equity out of their largest investment, they are expensive and have a lot of fees associated with them.
Still, there are people for whom a reverse mortgage continues to have appeal — and there are still many lenders around to make such loans available.
If you are considering one, it's very important to fully understand them.
The easiest way to understand reverse mortgages is to remember that with a regular mortgage, you pay the lender. With a reverse mortgage, the lender pays you based on the equity you have in your home.
A reverse mortgage is a loan that generally lets you tap a portion of the equity in your home, "converting" that part of your equity into cash. The money may come in the form of regular monthly payments, a line of credit to be tapped when you want, or some combination. The reverse mortgage loan typically doesn't come due until you no longer use your home as your principal residence, or you fail to meet the obligations of the mortgage.
Second, if you are considering a reverse home mortgage, check out the Federal Housing Administration's HECM loan. HECM stands for Home Equity Conversion Mortgage. The HECM program guarantees that the lender will meet its payment obligations. It also limits the amount of loan origination costs, and generally insures full repayment of the loan balance to the lender.
Before you get lured by the famous face on the screen telling you reverse mortgages are the greatest things since, well, Ginzu knives, please take your time and be sure to check out fully this investment. If you are an older American and your life savings is in your home, a reverse mortgage may be a wise consideration. Just be sure to ask questions before you sign on the dotted line.
Karen Paul is a financial planner.
No comments:
Post a Comment