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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: MBS Commentary

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  • Best Day of a Rotten Week For Mortgage Rates

    Posted To: Mortgage Rate Watch

    Mortgage rates actually fell today, on average--something they haven't been able to say all week, or indeed at nearly any time during the past 4 weeks. Yesterday, in particular, was the worst day for rates since 2011 for most lenders, with anything less than an ideal loan scenario garnering 30yr fixed quotes of 4.875% to 5.0%. With all of the above in mind, today's token improvement isn't necessarily exciting, but at least it's better than the alternative. Much of this week's rapid rise was seen in the first half of the week. Starting on Wednesday afternoon, markets began settling into a more sideways pattern, apparently getting in position for more volatility in the coming week. If there's an event that's likely to serve as the catalyst for that volatility, it's the Fed Announcement on Wednesday...(read more)

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  • Many Enlist, but Flood Coverage Still Falls Short

    Posted To: MND NewsWire

    Even as flood water continue to sit in living rooms and kitchens across a large swath of North Carolina it is clear that most of those homes are not insured against the damage. Mary Williams Walsh, writing in the New York Times, says that in North Carolina and South Carolina, which suffered less widespread damage, only about 335,000 homes in total have flood insurance. The Urban Institute (UI) reports that the number of policies homeowners purchased through the National Flood Insurance Program (NIP) has declined over the last ten years and the total is now just over 5 million nationwide. There are also some private insurance policies, but nowhere near enough to cover the affected homes. Sarah Strochak, Jun Zhu, and Laurie Goodman used data from the Census Bureau's 2017 American Housing Survey...(read more)

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  • MBS Day Ahead: Pain and Belief Radiating Across The Rate Spectrum

    Posted To: MBS Commentary

    More often than not, when I use the word "believe" (or belief), it's in some vague and positive context. For instance, something like "bond buyers are starting to believe again." That won't be the case today--at least not as far as the positive context is concerned. Today I want to talk about the beliefs that have radiated up from the short end of the yield curve over the past few years. They're like an infection that started in the toe but spread to more vital organs surprisingly quickly. The "yield curve" is just a fancy way of referring to the spectrum of time associated with various loans. The loans in this case are those taken out by the US government (via the Treasury Department) to finance all of its various spending. For instance, there are...(read more)

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  • Investor Products; Mortgage Fraud Paper; Wells, PUF, BMO Harris Personnel Changes

    Posted To: Pipeline Press

    When I spent an hour interviewing Angelo Mozilo on stage last week for the American Pacific Mortgage Summit, one of the issues we discussed was the competitive environment for lenders, and the evolution of the mortgage loan originator. Angelo, who is very much in command of his game, is a strong believer in the strength of the relationship that originators have with their clients, and the future that originators have in the lending industry. Lenders always have their eyes on the horizon, watching the changing competitive environment, and along those lines I penned a piece for the STRATMOR Group titled “The Rise of the Credit Unions.” Fraud, Legal Chatter, Warnings Jonathan Foxx published, entitled “Mortgage Fraud Challenges: How to Catch a Crook.” “Tracking down...(read more)

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  • MBS RECAP: Not a Win, But At Least It's Not a Loss

    Posted To: MBS Commentary

    After a series of demoralizing losses, it feels like some small victory for bonds to simply remain sideways today. That wasn't necessarily a given early this morning. In fact, yields hit new intraday highs for the week--the highest levels since May. Move down the curve just a bit and 5yr yields are at the highest levels since 2008--just another victim of the relentless move toward higher short-term rates. All that to say that the biggest risks to the long-term rate outlook have yet to subside. Rather, today simply suggests we may finally be leveling off before making the next big decision--something that seems likely to follow next week's Fed Announcement and updated rate hike outlook. As for specific market movers today, attempting to pin the tail on any particular donkey is a fool's...(read more)

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  • Mortgage Rates Trying to Stop The Bleeding

    Posted To: Mortgage Rate Watch

    Mortgage rates were mostly able to hold steady today, although they technically moved just a bit higher and that technically leaves them at the highest levels in 7 years. But hey! Let's focus on the positives... In terms of day-over-day changes, today was the best day of the week so far! To get an idea of where we are and why we're there, check out the last two days of commentary--always easily accessible here . As for today, it stands at least some chance to serve as the early stage of a ceiling for rates. Whether that proves to be true and how long such a ceiling lasts remains to be seen. In any event, next week's Fed announcement (Wednesday) has the greatest potential to kick off the next set of bigger moves. If volatility dies down between now and then, it would at least be better than...(read more)

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  • Existing Home Sales Level Out After Long Decline

    Posted To: MND NewsWire

    It was a disappointment, but at least it wasn't a loss. Existing home sales, which were expected to increase in August after four straight months of declines instead remained unchanged from July. In fact, almost the entire report on August's existing home sales can be summarized by the word, "flat." Said sales of single-family homes, townhouses, condos, and cooperative apartments were at the seasonally adjusted rate of 5.34 million, identical to the July rate. Sales in July had fallen 1.5 percent below those from a year earlier, and that too was unchanged in the August to August comparisons. Existing home sales were selling at an annual rate of 5.42 million in August of last year. Econoday said the analysts it polls were expecting at least a modest increase after months of lagging sales analysts...(read more)

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  • Vendor Mgt. and POS Products; Upcoming Events; Ask a Lender's Sunset?

    Posted To: Pipeline Press

    This Saturday is the autumn equinox – season-wise, we know what is on the way. “Rob, we, like everyone else, are watching the approaching winter, and higher rates, and wondering if there are ways to improve our financial picture without laying people off or cutting LO comp. Heard of anything?” This is going to sound like a paid ad, but it is not. I refer folks to Riivos (ex-Alight). It’s a cloud-based application for mortgage companies, regardless of size, that “integrates with your core systems (G/L, LOS, payroll, etc.) to show where your BPs are going, what actions you can take to improve profitability, and insight into how those decisions ripple through the company and increase P&L.” They specialize in “what if” scenarios. IMHO, and my...(read more)

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  • MBS Day Ahead: Long-Term Trend is a Cheap Trick. Here's The Reality For Rates

    Posted To: MBS Commentary

    One of the themes we often revisit in times of trouble is the long-term bull market in bonds. This traces back to the 80's and provides a shockingly linear set of lower highs and lower lows in 10yr yields. Most recently, we've seen yields rise back to the upper boundary of the long-term trend. There's still a chance they could hold ground here, but any further weakness means an official breakout. One other reason to hold out hope is that yields are also at the top of a shorter-term uptrend (teal lines). This could offer some technical support of its own, but it should be noted that the current version of that uptrend is much less linear than the one seen from 2002-2007. Incidentally, I think all of this "big picture trend" business is just a cheap trick (one I've often...(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