The number of federally insured reverse mortgages jumped a stunning 77 percent in
2006, and legislators and lenders are bracing for another huge increase in 2007.
Reverse mortgages allow homeowners age 62 and older to turn the equity in their
home into tax-free cash without having to move, sell their home or make monthly
mortgage payments. There are no credit or income qualifications for a reverse
mortgage. Social Security and Medicare benefits are not affected by taking out a
reverse mortgage.
With 78 million baby boomers about to turn 62 in the next couple of years, reverse
mortgages are expected to become a pivotal part of many retiree's overall financial
planning formula. More seniors are recognizing that traditional retirement tools, such
as IRA's, pensions, 401(k)s and meager Social Security benefits are not going to
provide sufficient income to help fund everyday living expenses and health care over
their life expectancy.
The federal government is also recognizing that the strain that 78 million baby boomers
will place on the existing entitlement programs; Social Security and Medicare is a disaster
waiting to happen. Lawmakers are so concerned about this looming problem that they
are actively encouraging the use of reverse mortgages. They are lowering the HUD costs
on a reverse mortgage if the senior uses some or all of the loan proceeds to purchase
long term care insurance. The House and Senate are expected to pass legislation that
will lift the cap on the number of reverse mortgages that can be federally insured at any
one time. Brian Montgomery, FHA commissioner and assistant secretary of Housing
at HUD, said that he anticipates reverse mortgages will one day be as commonplace
as 401(k)s and other retirement planning tools.
Because of the increasing demand for reverse mortgages, more and more lenders are
entering the market place. In addition to the HUD insured reverse mortgage, known as
HECM, there are also privately insured reverse mortgages, known as proprietary loans.
Typically the proprietary loans allow for higher loan amounts and more flexibility in
payment streams.
One of the bad raps that reverse mortgages have had in the past is that the costs for
obtaining a reverse mortgage are two to three times higher than obtaining a regular
forward mortgage. Although, there are good arguments to be made to justify the
costs, competition in this growing market is working to bring the costs down for
consumers. Meanwhile, the federal government is making an effort to push down
the costs for HECM reverse mortgages as well. According to HUD officials, the
Department of Housing and Urban Development, which insures most reverse
mortgages, is looking into lowering the origination costs and mortgage insurance
premiums that homeowners pay. At the same time, Ginnie Mae, a federal housing
finance agency, announced that it will begin packaging reverse mortgages for sale
on Wall Street. Ginnie Mae's move is widely expected to lower interest rates that
consumers pay, since studies have shown that Ginnie Mae's guarantees in the
traditional mortgage market lower rates by between 0.5 percent and 0.8 percent.
Competition in the reverse mortgage market is going to be good for consumers.
As with all mortgages, remember to study the contract details before jumping in
because there may be lower-costs between lenders and loan types.
There are many myths and misconceptions regarding reverse
mortgages. To find in depth information regarding reverse
mortgages or to locate a lender or loan advisor in your area
please visit us at Let Your Home Pay You.com
You will find unbiased information as well as a reverse mortgage
loan calculator, so that you can see approximately how much
money you might qualify for.
N.Sioris is a senior reverse mortgage specialist and the administrator of the reverse mortgage informational website
Let Your Home Pay You
1-888-269-1098
