Archive for category: Reverse Mortgages

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!

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.

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.

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

My 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.