Changes in Reverse Mortgages
The financial markets continue to fluctuate affecting most Americans retirement accounts. With all the negativity swirling about the economy, the most positive story to come out of the battered financial industry last year was the renewed interest in reverse mortgages. These loans are helping to ease concerns about outliving retirement savings and maintaining a satisfactory lifestyle during these turbulent times.
Reverse mortgages allow borrowers to continue owning their home, AND provide additional income to supplement retirement funds and payoff current mortgages. Plus, a reverse mortgage can also be complimented with a line of credit that earns interest for the homeowner to meet future needs.
There have been some major changes with the passage of the Housing and Economic Recovery Act of 2008. The federally insured HECM reverse mortgage now has a cap on the loan origination fees effectively lowering closing costs. The maximum lending limits have also been increased to $417,000.00 in New York State allowing access to a larger percentage of a home’s equity. This increase will bring the cost associated with reverse mortgages more in line with the loan benefits.
Another new wrinkle that was included in the Housing and Economic Recovery Act is you can use a reverse mortgage now to purchase a primary residence. The HECM reverse mortgage purchase adds a great, interesting option for anyone over the age of 62 who is looking to relocate or downsize.
The proceeds from the sale of their current home or using other assets can be combined with the funds from a reverse mortgage to purchase a new home. This will allow an individual to purchase without the burden of making a monthly mortgage payment.
For example, let’s say you’re 63 years old and you want to purchase a new property. The new property you selected costs $250,000. You sell your current residence and clear $200,000 from the sale. If you chose to buy the property with a reverse mortgage, you would be eligible for a $141,000 loan that you never have to pay back. You can put $109,000 down on the new house and bank the remaining $91,000.
With a conventional mortgage you would be required to income and credit qualify. You would also have to make a mortgage payment every month with less or no money in the bank. There are no income qualifications with a reverse mortgage, nor is there any monthly payment to the lender.
Because proceeds from a reverse mortgage are age specific (the older you are the more you get), based on the example above, if you were 75 years old you would be eligible for a $166,500 reverse mortgage, allowing you to bank $116,500.
A reverse mortgage is not for everyone. Other options should be weighed and financial experts consulted before entering into this type of loan. You should however, become familiar with the benefits of a reverse mortgage to consider whether this financial tool would enable you or someone you love to enjoy a more comfortable and rewarding retirement. In addition, especially in today’s turbulent market environment, it is advisable that borrowers work with local mortgage bankers rather than out-of-state brokers through phone calls only.
For more information about reverse mortgages or to receive additional free information tailored to your specific needs and circumstances, please contact Larry Pentak at First Niagara Mortgage at 518-464-1100 Ext.366 or email at l_pentak@firstniagaramortgage.com.
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