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4 reasons to consider a reverse mortgage

While aging in place -- including home maintenance, medical costs and property taxes -- will be the primary reason for seniors' tapping into home equity for decades to come, there are many other underestimated needs and wants that will quickly race to the front burner once a greater number of consumers better understand reverse mortgages.

In a recent column, we discussed the benefits of combining Social Security payments, securities portfolios and a reverse mortgage early into a retirement plan. By using the reverse mortgage to supplement the package during the life of the plan, researchers showed that a retiree's residual net worth (portfolio plus home equity) after 30 years is about twice as likely to be greater when an active reverse mortgage strategy is used than when the reverse mortgage is used as a last resort.
A significant percentage of older homeowners, plus their children -- the 79 million baby boomers who are now asking financial and lifestyle questions for their parents -- will consider a reverse mortgage as a viable opportunity in their life.

Why? Older people primarily want to stay in their homes, and the cash in their primary residences can help them stay there so they don't have to move to a retirement home. The bigger question becomes what happens if these huge groups do not stay in their homes or age in place? Where would we put them and how could we possibly fund such volume? Toss in the idea that people are living 30 years longer than they did 40 years ago and the potential shelter/care components become enormous.

More seniors are also figuring out that their kids have their own homes and don't need the parents' home. Those who do anticipate a child's or grandchild's need are acting sooner.

There are many people who took out a reverse mortgage for a specific use other than last-minute desperation.

For example, there's a grandmother in the Georgetown neighborhood of Washington, D.C., who took out a reverse mortgage on her million-dollar home and gave her two daughters $200,000 apiece so that they could use the money now "when they needed if for their own children" instead of getting the cash later in her estate when the grandkids had grown and moved on.

Or, the senior living near Boston, widowed at a young age, who got a reverse mortgage to put her daughter through nursing school.

An Oregon man, still working at age 68, used the cash from a reverse mortgage to buy a flat-bed truck that would carry the long sticks of PVC pipe needed for his sprinkler business.

According to the U.S. Bureau of the Census and the National Center for Health statistics, 80 percent of the older population -- persons 65 years of age and older -- own their own homes and 73 percent are owned free and clear of any mortgages, amounting to nearly $1.9 trillion in home equity. The biggest concern now is that mom and dad have no equity left in their home because of the downturn in property values.

However, there are still prime reverse mortgage candidates who have lived in high-cost major metropolitan areas for decades who still have plenty of equity to access and need only a sliver of it to make their lives more comfortable.

For example, a woman who worked part time as a ticket-taker for the Seattle Mariners relished her position at the home-plate entry gate. However, like many seniors, she simply could not make ends meet on her monthly income, especially when it came time for a major purchase.

"I needed a car," she said. "I mean, I really needed a car. I had to have something reliable to get to work."

She got a reverse mortgage for $30,000, bought a good used car and also paid bills. The remainder of the cash remains in a line of credit that grows at a moderate interest rate. When a friend tried to poke fun at her for paying the seemingly high fees to get the $30,000, it didn't bother her at all.

"I really didn't care what it cost," the woman said. "I love what I do, and this was the only way I could see to continue doing it."

The maximum loan fee on reverse mortgages is 2 percent on the initial $200,000 of the home's value and 1 percent on the balance thereafter, with a cap of $6,000. The fees seem too high to some, yet a bargain for others.

As the old saying goes, "You can tell somebody what something costs, but you never know what it is worth to them."
 

Mortgage News Daily

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    Posted To: MND NewsWire

    As analysts had expected, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) remained at 68 this month. The reading still indicates a strong level of builder confidence in the new home market, but the HMI has been relatively static for months, moving within a two-point range, 68 to 70, since March. NAHB surveys its new home building members monthly on their attitude toward the market. They are asked to grade their perceptions of the current market and the market they expect over the next six months as "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates...(read more)

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  • Builders Heeding Advice to Go West. Or South

    Posted To: MND NewsWire

    The National Association of Home Builders (NAHB) has plucked more information from the Census Bureau's Survey of Construction (SOC), this time to paint a portrait of the state of residential permitting nationwide. Danushka Nanayakkara-Skillington writes in NAHB's Eye on Housing blog that permits for single-family construction issued during the first five months of the year were up by 8 percent over the same period in 2017. The National Association of Home Builders (NAHB) says the nationwide total for the period is 363,327 compared to 336,410 for the year-to-date (YTD) through May 2017. The activity however, was skewed toward the West and the South. Permits were issued at a similar seasonally adjusted annual rate in May of 363,700, an 8.6 percent year-over-year increase. The Bureau will issue...(read more)

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  • MBS Day Ahead: 2018 Rate Hike Odds Provide Backdrop For Powell Testimony

    Posted To: MBS Commentary

    Fed Chair Powell begins 2 days of semi annual congressional testimony today with the Senate Banking Committee at 10am. In recent years, this testimony has devolved into laughable political theater, mostly. That said, today's has a few redeeming qualities. First off, the Senate session tends to be slightly less theatrical than the House version coming up tomorrow. Beyond that, we know from Powell's previous congressional appearances that he tends to navigate the political posturing with more grace than Yellen--something that tends to help move the legislative blowhards through their grandstanding more quickly. Finally, despite all the theater, the fact remains that this is a venue for the Fed Chair to answer unscripted questions. Therefore, there will always be big market movement potential...(read more)

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  • Sales and Broker Products; Freddie and Fannie Updates

    Posted To: Pipeline Press

    “What can be asserted without evidence can also be dismissed without evidence.” While you ruminate on that one, there continues to be evidence and reminders that potential home buyers are having trouble coming up with “skin in the game,” aka, a down payment. It would take an average of 36 years for someone earning the median income in D.C. to save for a 20% down payment on a median-priced house, according to a recent report from U.S. Mortgage Insurers. Still, try being a teacher in San Francisco earning $70k/year saving up for a median-priced $1.6 million home. Capital Markets Rates? Every day, a little up, a little down , although many days borrowers wouldn’t notice the difference on rate sheets. Yesterday they went up a little bit as bond prices dropped (there’s...(read more)

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  • MBS RECAP: Slightly More Active Than a Typical Summertime Monday

    Posted To: MBS Commentary

    Summertime Mondays are notorious for light volume and seemingly random trading. Today was a slightly more active than normal in that regard, largely due to the presence of top tier data (Retail Sales) and a geopolitical event in the form of the Trump/Putin summit. The latter was never expected to offer any major revelations, but the former is always capable of delivering some bond market momentum. Bonds were just slightly weaker heading into the Retail Sales numbers. The weakness continued after the report came out stronger than expected. But wait! It was 0.5 vs 0.5, so how was it stronger than expected? The key difference was in the revision to last month's report (previously 0.8 but now 1.3%). The "core" sales reading was also revised higher. Additionally, several GDP estimates...(read more)

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  • Mortgage Rates Edge Higher

    Posted To: Mortgage Rate Watch

    Mortgage rates fell to their lowest levels since late May as of last Friday. Today, then, would be the 2nd best day since late May. Rates edged slightly higher to begin the new week as bond markets (which underlie rates) came under modest pressure for several relatively inconsequential reasons. The net effect was a small adjustment in the upfront costs associated with prevailing rates. In other words, the actual interest rate governing your monthly mortgage payment hasn't changed in weeks, but the upfront costs tied to that rate are slightly higher for lenders today compared to last Friday. Loan Originator Perspective My clients and i continue to favor locking in once within 30 days of closing. Only loans i would consider floating would be those that can lock on a shorter time tomorrow or if...(read more)

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  • MBS Week Ahead: Another Week, Another Chance to Run Same Old Play

    Posted To: MBS Commentary

    This is the off-season for bonds, but they still have to show up for the game every day. The coaching staff (aka the traders turning the cogs of the underlying bond market) have been running the same play every day since June 27th . It's a play that's been working on both offense and defense, thus providing an easy button for the entire team (even if it's also a "boring button"). No one gets hurt, and no one has a ridiculously good time--typical off season. So what's the play in question? Simply put, bond market players have been tasked each day with playing harder and harder defense whenever yields rise toward 2.88. On offense, they only push hard enough to get yields to 2.825, as seen on the following chart with numerous bounces on the lower teal line. I included...(read more)

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  • Broker Products; Blockchain Transaction; Input on DACA Loans

    Posted To: Pipeline Press

    When Costco rolled out its mortgage option to members, many lenders were very concerned. But despite great potential, Costco/First Choice has not become the #1 lender in America. I heard something interesting last week: Costco doesn’t make much money selling products, it makes all profits from membership fees . Despite Bank of America’s great quarterly results this morning, lots of lenders aren’t making much money selling their products either, unfortunately, and the number of residential lenders who haven’t adjusted their headcount, compensation plans, or business models in reaction is dwindling . (The latest example is job cuts at State Farm .) If a branch or channel hasn’t been profitable for a while, ask what’s going to happen, if anything, to reverse...(read more)

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  • Permit to Completion - Builder Timeline Depends on Where and Why

    Posted To: MND NewsWire

    Despite complaints about labor, lot, and material shortages, builders needed no more time to build a home last year than they did in 2016. The time did increase compared to 2015 by about two weeks. Using data from the Census Bureau's Survey of Construction (SOC), the National Association of Home Builders (NAHB) concludes that the average time to build a single-family house was 7.5 months. The actual building time was about 6.5 months following a typical delay of around 30 days after the permit was authorized. Data from the 2015 survey showed the time from permit to completion at 7 months. The range however is wide, from less than a month to more than 6 years. Much depends on who is building the house, for what purpose, and where. , writing in NAHB's Eye on Housing Blog, says that houses built...(read more)

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  • MBS RECAP: Bonds Gain Despite Data Surprise and Stock Rally

    Posted To: MBS Commentary

    Before any discussion about market movement in July, we have to set the stage with some disclaimer about "slow summertime trading." That was the subject of this morning's commentary ( read it here , if you like). With that out of the way, we're equipped to pay the appropriate amount of attention to today's seemingly interesting events. First up, we had a reasonably strong move in European bonds overnight help set a mildly positive tone for the start of domestic trading. The biggest volume spike of the early morning came at 8:30am in response to the Import Price data, which came in much lower than expected. Bond yields/prices, themselves, only moved a bit, however--a fact that likely reflects the nearness of yields to the lower end of their prevailing range. The other notable...(read more)

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Bonnie Koff  |  Licensed Associate Real Estate Broker  |  William Raveis Legends Realty Group  | Tarrytown Office 
914-332-6300  |  37 Main Street, Tarrytown, New York 10591  |  Email