Articles for people who would benefit from a reverse mortgage or for family members of people who would benefit.

COVID-19: What Is The Impact On Refinances and Reverse Mortgages?

There is quite a bit of commentary being shared by industry professionals and news organizations regarding the impact of temporary COVID-19 regulations and current economic trends on the housing, mortgage and real estate industries.

At Orion Mortgage, our specific expertise is on mortgages and we specialize in refinances (traditional, VA and Reverse) for Colorado homes. So how do those temporary regulations and current economic trends impact what we do and, as a result, impact your options for refinancing?

Let’s address temporary regulations first:

The Governor has ordered a temporary halt to evictions and foreclosures. Some tenants or borrowers may misunderstand and think their monthly payments have been cancelled because of this order, but this is not the case. The Governor can temporarily stop the legal action, but consequences are likely to follow if payments simply stop being made.

If you are a renter having problems making your monthly payments, you need to reach out to your landlord.

For homeowners with a monthly mortgage payment, the CARES Act provides a mortgage forbearance option for FHA, VA and USDA loans. You should contact your loan servicer (their number is on your monthly mortgage statement) to make sure you fully understand the terms and expectations of forbearance.

As for how economic trends may impact on your options for refinancing:

Is now a good time to do a traditional (forward) refinance? Our answer hasn’t changed much from prior to COVID-19. That depends on your current mortgage, your financial situation and your future goals. We always recommend an annual mortgage review and are happy to have that conversation with you free of charge and with no obligation to move forward. This conversation will either provide you with peace of mind knowing that you are already in a great mortgage situation or with options to consider for a refinance.

Since the majority of our refinance business involves Reverse Mortgages, we have paid particular attention to what is happening in this arena. For borrowers who already have their Reverse Mortgage in place, there seems to be less financial anxiety. Borrowers don’t need to worry about monthly mortgage payments, and for those with a line of credit, they know it is guaranteed not to be cut or closed, unlike borrowers with a HELOC or those depending on credit cards.

For homeowners who have been on the fence about getting a Reverse Mortgage or have heard negative comments from their personal bank (probably because they aren’t offering this particular product) or friends/family who are relating second- or third-hand stories, we are happy to answer your questions and address your concerns.

We’ve come across a video that does a great job presenting the difference between a Home Equity Line of Credit (HELOC) and a Reverse Mortgage line of credit (known as a HECM – Home Equity Conversion Mortgage). The speakers in this video throw around some industry jargon, so if you would like clarification on anything that is said, give us a call – we’re always happy to help translate!

There is also reference made to a “Platinum Product” in this clip. This is a specific non-FHA Reverse Mortgage product. We have this and similar products available, but have not generally recommended them for the same reasons Mr. Andelman discusses in the video. That being said, we can provide these non-FHA products. They generally are attractive for borrowers with homes valued above $1,000,000 and who don’t mind paying higher interest rates.

At Orion Mortgage, Inc., our top priority is to match each borrower to the loan that best suits their financial circumstances and ultimate goals.

As always, if you have any questions about this video, our comments or refinancing your Colorado home, please contact us at 303-469-1254 or email Don@OrionMortgage.net

VIDEO:

https://hecmworld.com/reverse-mortgage-news/exclusive-interview-martin-andelman-heloc/

The Impact of Current Events on Reverse Mortgage Decisions

In this time of financial uncertainty, we are seeing renewed interest in Reverse Mortgages for three primary reasons:

Concern over the rapid drop in the value of financial investments. With the stock and bond markets exhibiting high volatility and large drops in value, people who have a Reverse Mortgage line of credit can use the line instead of selling depressed financial assets.
Concern over a potential drop in real estate values. We just received an application from a borrower who wants to close as soon as possible to be ahead of any drop in the real estate market.
Interest in a “payment optional” loan. People often think of a Reverse Mortgage only as a way to get money from the equity in their home. It is also a loan that allows the borrower to make payments to reduce the loan balance when they are employed, and either skip payments or draw money out when employment is interrupted. This can be an excellent option for anyone over 62 that is still employed. This works best if the loan is in place before employment is interrupted.

For those who have a Reverse Mortgage in place, now is a good time to review the current loan for a possible refinance. You may already be receiving mailings and other solicitations to refinance based on public record data. Rather than calling one of these unknown entities, if you are curious about your options, we are happy to provide a free, no-obligation analysis of your loan to see if a refinance makes sense.

Factors that make refinancing an existing Reverse Mortgage a viable option:

• The property has increased in value enough so you could have access to more money.
• Interest rates have dropped so you could access more money or slow the liquidation of your equity.
• You have a fixed rate HECM now and would like to have a line of credit or monthly payments.

There are many ways to structure a new Reverse Mortgage, depending on your situation:

• Some borrowers qualify for a no cost refinance where the lender pays all the closing costs and no closing costs are added to the loan balance.
• Non-FHA Reverse Mortgage products with closing costs as low as $125. All other closing costs are paid by the lender.
• Traditional cost structures where the closing costs are added to the loan balance to get the lowest rate.
• Borrower-paid taxes and insurance OR a life expectancy set aside to pay taxes and insurance.
• We have other variations between the above.
• Fixed rate and adjustable rate products.
• Products that work best with an initial draw of $100,000 or more and others that require no draw at closing.

Call Don Opeka at 303-469-1254 to learn more!

Many Seniors May Already Be Living In Their Most Affordable Housing Option…they just don’t know it!

In early 2018, after living in their current home for nearly 20 years, Alan and Grace (names have been changed to protect privacy), both in their early 70s, decided it was time to look for a smaller, more affordable home.

After talking to their Realtor, Alan and Grace found themselves in a quandary that is becoming all too common. Between their current home value and their loan balance, there wasn’t enough equity for them to purchase another home in the area that would suit their needs and provide them with a financial benefit. In order to achieve their goal of lowering expenses, they would need to move to another state, leaving their friends and family behind.

Fortunately, their Realtor recognized that a Reverse Mortgage might be a viable option for them and referred them to Don & Terri Opeka at Orion Mortgage, Inc. After meeting with Don & Terri, Grace was receptive to the idea, but Alan was less than enthusiastic. Don & Terri listened to their concerns, answered their questions and walked them through various options so they could make an informed decision that best suited their goals. Three months later, Alan and Grace decided to move forward with a Reverse Mortgage.

Just when they felt that their financial problems were over, Grace fractured her hip. The break was so bad that it required surgery and months of rehabilitation. By the time they were ready to resume the application process, another five months had gone by!

Their loan was processed and approved through the holiday season and in January, 2019, their Reverse Mortgage was in place. This meant their previous monthly mortgage payments on a $113,950 loan were eliminated, their taxes for the year were paid and they had an additional $32,277 line of credit available for any future needs.

Grace called Don & Terri early in the summer of 2019. Alan had passed away that spring and she was so grateful for her Reverse Mortgage. Without it, she would not have been able to cover her monthly expenses on her income alone. Since the loan had already been put into place, she didn’t need to worry about losing her home or feel pressured to make a financially-driven housing decision after Alan’s death.

It is not uncommon for a surviving spouse to sell their home, often at the urging of well-meaning family members, in order to downsize or economize. However, the seemingly large proceeds from selling a home quickly vanish when the cost of renting is more than a former mortgage payment or the available housing inventory doesn’t include homes within the price range of the profits that are left after selling.

If you or a loved one find yourself in a situation like Alan and Grace, or have already experienced the loss of a spouse and are trying to adjust your financial plan to new circumstances, please consider having a conversation with a knowledgeable mortgage broker about whether or not a Reverse Mortgage might be a solution before your home is placed on the market.

Orion Mortgage, Inc. is a Broomfield, CO – based small business and has been providing personalized service to Colorado homeowners since 1996. * 303-469-1254 * www.OrionMortgage.com *

The Risks of Indecision and Inaction

As difficult as some decisions may be, putting them off may effectively eliminate your best options and leave only one course of action.  Quite often that default option never would have been the first choice.  It was simply the one that required the least effort.  To quote Peter Drucker,

“One has to make a decision when a condition is likely to degenerate if nothing is done…

The effective decision-maker compares effort and risk of action to risk of inaction”

We have recently had several instances of people who could have truly benefited from a Reverse Mortgage, but they waited too long.  For some it is fear, for others it is lack of knowledge, and for others, it seemed too daunting a task.  We are here to help you, your loved ones or your clients navigate the Reverse Mortgage process, starting with education, so their decision can be an informed one.  Maybe a Reverse Mortgage is right for them, maybe it isn’t.  You won’t know until you ask your questions, we ask our questions and we see not only your current situation but understand what your goals are.

Many people do not understand the versatility of Reverse Mortgages – that they can be tailored to suit the needs of the borrower.  People just assume “One of those won’t work for me”, without stopping to take the time to investigate.  Here are some scenarios where we might have been able to help but now are unable to:

After filing for bankruptcy, a couple came to us for a Reverse Mortgage.  They would need $20,000 in cash to pay down their current mortgage enough to qualify for the Reverse Mortgage.  Unfortunately, they didn’t have it.  Had they come to us sooner, when they still had some savings, they might have been able to avoid the bankruptcy and qualify for the Reverse Mortgage.

A self-employed couple called about a Reverse Mortgage.  Their business had been declining for many years due to market changes.  Unfortunately, by the time they reached out to us, their situation had deteriorated to a point where a Reverse Mortgage could not solve the problem.

A couple with past financial troubles applied for a Reverse Mortgage.  Unfortunately, there was a second mortgage on their home from when they had difficulties.  Had there only been a first mortgage, we could have helped.  Now they will either need to figure out a way to pay the second mortgage or wait until their equity increases to a level where they qualify for the Reverse Mortgage.

A 66-year-old woman lost her job about seven months ago.  It was a good job that paid well.  She did not want to start drawing Social Security until she was 70 in order to maximize her benefits.  She wanted a Reverse Mortgage, but had no documentable income.  We recommended that she get a job, even it pays less than the last job.  By remaining unemployed, she runs a risk of creating too large an employment gap which will then require her to have two years of employment before she can qualify for a loan.

Because Reverse Mortgages are underwritten based on income, assets and credit, it is possible for someone’s financial situation to deteriorate to such a point that a Reverse Mortgage is not possible.  Many people view Reverse Mortgages as a last resort when instead, they should be considering the Reverse Mortgage first – before filing bankruptcy, taking out a second mortgage or selling in hopes of finding cheaper housing.

The most ideal time to get a Reverse Mortgage is when you are convinced you don’t need one –

when your health is strong, money isn’t an issue and you see nothing but blue skies ahead.  

Then, when the storms come, you are prepared.  While you are dealing with a sudden health crisis, unexpected home repair or other family emergency is not the most opportune time to start filling out loan paperwork.  It can be done, but it just compounds the stress.

Please let us know how we can help.  We are happy to answer your questions and run various scenarios with you to help you through your decision-making process.  Even if a Reverse Mortgage isn’t the course of action you determine to be best for you, at least make that decision with all of the available information.

 

Certified Senior Advisor (CSA)

Guest Author:  Amanda Varga

Don has recently gone through the books, class time (3 days!) and the testing to become a CSA.

What does that mean?

CSA stands for Certified Senior Advisor. It means that he has gone through additional training to set him apart from his peers. This particular designation is not specific to mortgages or even the banking industry in general. Instead, it is for any professional who works with the senior population in the course of their business. According to the CSA website, this “…credential applies to professionals who are able to demonstrate their competence and knowledge of working with older adults into their professional practices.”

Why bother?

Don is already a member of the NRMLA (National Reverse Mortgage Lenders Association) and has all of the necessary licenses to conduct his business in the State of Colorado. And, as he is quick to point out, he is a bona fide member of the senior population himself. So what difference does it make if he adds a bit more alphabet soup to the end of his name with another certification?

There is no shortage of available mortgage brokers in Colorado and plenty of them provide reverse mortgages. However, as of right now, only three mortgage providers in Colorado, including Don, have the designation of being a CSA. This sets him apart as one of the few who have made a priority of not only acknowledging that the senior population is a growing part of his business, but has taken the time to understand the various dynamics at play within the lives of older adults.

How can this be verified?

Don’s certifications and memberships are listed below and linked to their corresponding sites:

Certified Senior Advisor

Licensed Colorado Mortgage Loan Originator

Colorado Association of Mortgage Professionals

National Reverse Mortgage Lenders Association

The Association of Mortgage Professionals – Lending Integrity Member

Denver Metro Association of Realtors

Broomfield Chamber of Commerce

Better Business Bureau

Don also regularly attends several networking groups with other professionals serving the senior population in the Denver Metro area. These include: Jefferson County Council on Aging, Adams County Aging Network, Denver Senior Coalitions – Northwest Chapter and St. Joseph Forum. In addition, you can find the Orion Mortgage, Inc. booth at quite a few of the local senior events around town. Visit our Events page for upcoming locations. www.OrionMortgage.com/Events

Why Is Credit Important?

I often meet people who are happy that they have no open credit accounts. Being out of debt gives great freedom and is something I endorse, but it is still important to have credit available. Here’s why.

I got an email on Tuesday telling me of a woman about to be discharged from a hospital on Friday. She needed $16,000 to pay for a rehab facility. She didn’t have the money in checking or savings. What options did she have for meeting this expense? Could I get her a loan by Friday?

Financial experts advise us to accumulate an emergency fund for just such needs. That is the ideal. This woman, however, is not unusual in not having been able to save enough to cover an emergency such as this.

She could consider a cash advance from a credit card if its limit equaled or exceeded the need. In each individual case, that limit may or may not be high enough. A Home Equity Line of Credit will not work well for emergencies because of the time necessary between loan approval and funds availability. She would have needed to have it in place prior to the need in order to access funds on such short notice. Of course using either of these options, she would incur monthly payments to get out of debt again.

Having a Reverse Mortgage Line of Credit in place would have been an excellent option to meet her need with the least amount of pressure on her. It would have given her access to quick cash for situations like this. In this person’s case, and since she was over 62, it would have required no monthly mortgage payments. She would just continue to pay property taxes, property insurance, and maintenance on her home for as long as she lives there.

Remember, too, that having a Reverse Mortgage Line of Credit in place does not mean that you have to use it. It is simply there, a cushion if you should need it.

Unfortunately, given the short time frame this woman was working with when I was contacted, there was no legal way to arrange a mortgage to provide the money as quickly as she needed it. All I could suggest was for her to check the limit on her credit card and seek a cash advance.

Don’t let that be your only avenue when an emergency arises. Call Don at 303-469-1254 to learn about your options.

Too late to buy?

Many people in their 50s or 60s who do not own a home may think buying a home won’t benefit them, but it can.  This is the story of one such person.  Mary (not her real name) was single, age 59, and renting in 2012. Her income was  about $3,000/month.

In March 2013, she bought a two-bedroom condominium for $100,000 with a 3.5% down FHA loan.  Her monthly payment including consumer debt totaled $1,193.31.  While living there, she maintained the property and made some low-cost improvements.

In August 2015, 2.5 years later, Mary sold the condominium for $168,000. This enabled her to pay off her consumer debts and buy a three-bedroom condominium for $180,000 with 20% down.  With no remaining consumer debts, her monthly payments were $1,122.79.

Let’s say current appreciation continues. By March 2018, five years after she bought the first property, she should have enough equity to obtain a Reverse Mortgage and eliminate her mortgage payment.  She will then be in a home with expenses for taxes, insurance, HOA, and maintenance of about $550/month.  She will have two extra bedrooms that she can rent out using www.Silvernest.com or www.SunshineHomeShare.org to provide additional income.

The net effect? Based on current numbers, Mary may be able to stop working and live on her Social Security income when she reaches full retirement age.  If she had not purchased a home, it is unlikely that her Social Security alone would have been adequate to pay market rent.  Additionally, rooms on www.Silvernest.com or www.SunshineHomeShare.org may rent for more than what her condo will cost with a Reverse Mortgage.

I cannot predict future appreciation, but wouldn’t you agree that owning a home without a mortgage payment is a good option for low cost housing?
Orion Mortgage, Inc. offers Reverse Mortgages and HECMs to eliminate the mortgage payment for homeowners over 62.  Call Don Opeka at 303-469-1254 with questions.  Colorado MLO license 100007878

The Move Down Trap

People in their 40s, 50s or 60s commonly buy a “trophy house” while they are working and have a family, with the intention of “moving down” when they retire.  This can work fine if the “trophy house” is paid for, along with all other debt, before the buyer stops working.  If not, then the trap can be not enough equity to make a “move down” economically viable.  Let me give you two recent examples:

George (not his real name) bought a home for $262,000 with a $221,000 loan when he was 56 and his wife was 52.  Six years later, when he was 62 and wife was 58, they still owed about $210,000 and the value was $329,500.

George wanted to sell because he decided they could not afford to keep the house.  He hoped to buy another home without a mortgage, using the cash from the sale and perhaps adding a little to it.  Typically a seller will have to pay about 10% of the sale price in closing costs, commissions, repairs, moving expenses, and other miscellaneous costs.  In this case, a $329,500 sale would result in $32,950 in costs and $210,000 mortgage payoff, leaving about $86,550 cash to George.  If he adds about $40,000 cash, he can afford to pay  $125,000 for a home.

With $40,000 cash and a reverse mortgage, on the other hand, he could stay in the original home.  I estimate the cost of taxes, insurance, and maintenance on this 2092 square foot ranch-style home at about $500/month.  George may be able to find a much older condo to live in for $125,000, but taxes, insurance, and maintenance probably won’t be much different than in the $329,500 house.  In many cases, for the price of HOA fees on a condo, a homeowner can hire people to do the lawn care, snow shoveling, and other exterior maintenance.

If George decides to rent instead of buy, it’s likely his rent will be significantly more than $500/month, and the $86,550 proceeds of the sale will dissipate quickly.

Here’s the second example. Henry (not his real name) bought a home for $428,200 with a $385,380 loan when he was 60 and wife was 59.  Three years later, Henry inquired about a reverse mortgage.  In that time, the property had increased in value to about $570,000 and the loan had been paid down to $367,400.  With these numbers, Henry needed about $65,300 cash to obtain a reverse mortgage.  If the home value increased to $625,500, the maximum lendable value for an FHA Reverse Mortgage, he still needed about $36,000 cash to get the reverse mortgage, or he had to pay the loan down to about $330,000.

On the other hand, selling the home for $570,000 would result in costs of $57,000 and a mortgage payoff of $367,400, leaving about $145,600.  At Henry’s age, he could buy a home under $300,000 with $145,000 cash and a reverse mortgage.

A recent quote for a newer 1 bedroom apartment in a senior community was $1,755/month, and a 2 bedroom was $2,245/month.  If Henry chose to rent, his $145,000 wouldn’t last long.

For both George and Henry, the income reduction associated with “retirement” came sooner than expected.  With a large mortgage and limited additional financial assets, both George and Henry were left without any attractive options.

I recommend that people moving in their 40s or 50s consider homes that they can sustain into retirement.  I understand that a bigger and more expensive home is always attractive, but being forced to choose a less expensive one as a result of financial pressure can have a disappointing outcome.

Reverse Mortgage Planning

I met a man whom I’ll call George at a networking event last summer.  In 2013, George and his wife Kathy bought a home for $428,000 with 10% down and a $385,389 loan.  In August 2016, George asked me if they could get a reverse mortgage.  George is 64 and Kathy is 62.

Their Situation Didn’t Qualify for a Reverse Mortgage

I reviewed their current situation and found that the current value of their home is about $570,000 and they owed $367,396.  That balance is too high to transfer to a reverse mortgage.  They don’t have the cash to pay the balance down now, but if they wait the value should continue to increase.  

Unfortunately, the maximum lendable value for an FHA reverse mortgage in the Denver metro area in 2016 is $625,500.  This means any increase in value above $625,500 will not result in more money to pay off the existing loan.  When I entered a value of $625,500 into the reverse mortgage software along with George and Kathy’s birthdates, I found that it could pay off a $313,760 loan balance.  My conclusion here was that appreciation alone will not make it possible for George and Kathy to get a reverse mortgage on this property.  They really need to get the loan balance down to about $313,000.

Finding a Solution

Their existing loan had a rate of 4% and private mortgage insurance.  Refinancing to a 20-year loan at 3.5% with no closing costs to the borrower would mean that the payment would remain about the same as they are paying now while the balance would reach $313,785 in just 4 years.  Without this refinance, it would take years longer before they could qualify for a reverse mortgage unless they made higher payments.
George and Kathy’s story is one example of how we look beyond what the borrower asks in order to find a solution. Instead of just declining a loan, we look for ways to turn a “no” into a “not now,” giving the borrower a plan to get the loan they want.

How to Select the Right Mortgage

The ads in the mortgage industry almost always focus on “we will give you the lowest rate.” The advice the government often gives is to shop for the lowest APR. While these approaches have merit, they typically overlook the issue of closing costs and how long it will take to recover the closing costs through interest savings. Some suggest refinancing when a borrower can lower the rate 2% or more. For reasons I explain below, we can easily justify refinancing for a much lower rate change.

APR Calculation

The APR calculation is valid, but it is based on the assumption the borrower will remain in the home for the entire term of the loan and make the minimum payments for the term of the loan. The APR comparison process breaks down if the borrower sells the home before the loan has run full term, refinances before the loan has run full term, or prepays the loan.

Based on my personal experience and watching the behavior of many customers, I find the above assumptions rarely turn out to be true. My observation is that almost all loans are prepaid when the borrower moves; the borrower refinances before the end of the loan term, or prepays the loan. I do not have statistics to show the statistical repayment rate.

Making a Loan Choice

OM PostMy preference is to look at the loan choice with three considerations:

  • What happens if it is in place longer than I expect?
  • What happens if the loan is in place for the time I expect it to be?
  • What happens if the loan is paid off earlier than I expect?

The easiest of these is the comparison for a loan that lasts the expected time. People often choose hybrid ARMs because they expect to be in the house for 5-7 years and then move. If this really happens, then the choice works well. Unfortunately, many people chose ARM’s during the mid-2000s and then were trapped when the economy declined. Some found themselves in “exploding ARMs” with declining incomes. The result was an expensive foreclosure. We generally recommend choosing a loan that is tolerable if the borrower must stay in the property and not refinance for a much longer time than expected.

The other scenario we have seen play out over the last couple of decades is mortgages routinely being paid off early. While some are paid because of a sale, early payoff because of a refinance is more common. The refinances occur for either of two reasons: Market interest rates have declined or market home prices have increased. Either one can cause a refinance.

Lowest Rate vs. Lowest Fees

Every loan involves a choice between lowest rate, lowest fees, or some compromise of these. I generally recommend looking at the tradeoff between rate and fees through the lens of cost recovery time. If the tradeoff is such that a year or two of interest savings will recover the difference in fees, then choose the lower rate. If it will take 8-10 years of interest savings to recover the difference in fees, take the lower fees. The disclosure of trade off between rate and fees is not generally in a form for public distribution, but I am always happy to discuss it in person and explain the options to any borrower.

What is important is that we can often lower a borrower’s rate with no cost to the borrower, or provide a debt consolidation loan without increasing the interest rate. Let us do a free analysis of your situation to see how we can help you.