Home Financing Matters: What is a Reverse Mortgage?

Last week a Realtor called me asking about Reverse Mortgages and his underlying tone was really asking, “Are they safe?”  That started about a 30 minute conversation about the nature and purpose of a reverse mortgage.

Reverse mortgages are like any product or service, they are as good as the people behind them.  The risk to any undertaking is understanding the company you deal with and the guarantor behind the program.  FHA offers a reverse mortgage and its purpose is to help older individuals, or couples, stay in their home while reducing their monthly expenses.  Borrowers must be at least 62 years old at the beginning of the mortgage period and there is no limit as to how long they can occupy the home as their primary residence.

The borrower continues to own the home throughout their lifetime and is responsible for the maintenance, yearly taxes and insurance on the home, but never has to worry about making a monthly mortgage payment.  As long as at least one of the borrowers is able to continue to live in the house as their primary residence, then the house remains in their possession.  At the time of their death, the lender would give the family or their heirs up to 12 months to sell the property, and they would still be entitled to any equity but could not be held responsible for any loss on the lender’s part.

Reverse mortgages serve a purpose to allow elderly individuals on a limited income to remain in their home, while reducing their monthly housing expense by reducing their mortgage payment.  As with any loan product, borrowers should thoroughly discuss their loan with the lender and satisfy themselves with their options.  The one great thing about an FHA Reverse Mortgage is that it requires the borrower to go through a HUD/FHA approved counseling course before any decision is made.  

The course is taught by a third party not associated with the lender and the borrower must complete the course before the loan process begins.  A reverse mortgage may not be for you, but talk with your family, your lender, and a counselor before you rule it out.

Copyright ©2015 Richard Swan

This blog is for informational purposes and is the opinion of the writer.  In financial matters always solicit professional advice and legal counsel if necessary.  

Is Now A Good Time To Buy A Home? Yes Virginia, It's a Great Time To Buy

The question that I have heard most over the last year echoes in my mind, “Is now a good time to buy a home?” My unequivocal answer is yes, but let me explain why I believe now to be a great time to buy.

The first and foremost reason is low interest rates. Borrowers can maximize their buying potential today, unlike any other time in modern history. Rates today are in the 4.0%-4.375% range for a 30 year fixed rate mortgage. At 4%, as opposed to 6%, on a $200,000 loan you will save $88,000 in interest over the life of your loan. That does not even take into consideration using the monthly savings (about 20%) to pay additional towards your mortgage each month to pay off your home early.

If you look at the difference in buying power, you can look at over a $250,000 house today for the same payment that a $200,000 house will cost you monthly; when rates rise back to 6%.

Secondly, home prices are very attractive. Many studies seem to indicate that we have reached the floor in home values. Some studies point to average home sale prices being comparable to 2003 values; this reflects a 30% drop in home values since June of 2006. While home prices vary from state to state, buyers are still able to find great deals and many foreclosed properties are still on the market.

While foreclosed properties appear very attractive based on their price, buyers should avail themselves of qualified professionals to evaluate the property. Many foreclosures suffer from deferred maintenance and may have problems that are far worse than they appear. Speak with a licensed contractor and obtain estimates on repairs during your evaluation process. While the price may seem attractive, repairs often push the property above the average sales price of similar properties on the market.

First Time Buyers and those currently renting benefit most of all from the current conditions, because they don’t have a property to dispose of at present. Many current homeowners’ have shown reluctance to take advantage of historically low rates, because of fear of selling their current home. This is a conversation to have with a Licensed Realtor. They can do a CMA (Comparative Market Analysis) of your home to determine a reasonable list price.

All in all, now is a great time to look at increasing your buying power in the real estate market. Low interest rates, coupled with low home prices, maximize your buying potential, allowing you to consider the home of your dreams.


© 2011 Richard Swan
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.