When Should You Get a Reverse Mortgage?

The Economic Recession/Depression/Crisis Has Spurred Higher Loan Limits and Greater Need – Is Now REALLY the Best Time to Get a Reverse Mortgage?

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Is now the best time to get a reverse mortgage?
When Should You Get a Reverse Mortgage?

The answer to the question of “Is now really the best time to get a Reverse Mortgage?” is mostly dependent on your own personal situation. If you need to increase your monthly income or reduce your housing expenses or require a lump sum of cash, then a Reverse Mortgage can be a great way to achieve your objective.

While the fall in home values means that you probably have less home equity to borrow from now than a few years ago, there are a few reasons that make 2010 a particularly good time to consider a Reverse Mortgage.

Huge Increase in Reverse Mortgage Loan Limits

Designed to help seniors access more of their home equity to fund retirement expenses during this economic crisis, Congress passed legislation that increases Reverse Mortgage loan limits to $625,500. The new loan limit was effective for loans in 2009 and was extended to all loans in 2010.

Reverse Mortgage loan limits were as low as $200,160 in recent years so this is a huge increase which could significantly improve your financial situation.

While $625,500 is the maximum, your HUD-approved lender will determine your actual loan amount by using the value of your home, prevailing interest rates, the amount of any outstanding loans against your house and your age.

Interest Rates Are at Record Lows

In a continued effort to spur lending and spending, the federal government has lowered and kept interest rates at historically low levels. While impossible to forecast, rates are expected to rise slowly in the future.

Different reverse mortgage programs employ different base index rates, usually either the one-year Treasury bill (T-bill) rate, or the London Inter-Bank Offered Rate (LIBOR). All of these interest rates are currently very low compared to their average levels, meaning that the impact on your equity of a reverse mortgage may be proportionally smaller than it would normally be.

New HUD Floor on Interest Rates

With Reverse Mortgages, the lower your interest rate, the more money you generally will qualify for. However, if interest rates drop beneath a certain minimum “floor”, you cease to obtain benefits from them. In October of 2010, HUD altered the rules surrounding Reverse Mortgages, shifting that floor from 5.5% to 5%, which means, combined with low prevailing interest rates, that many homeowners are suddenly able to access more of their home’s value than they could before.

New HECM Programs now available

On October 4th, 2010, HUD instituted an entirely new HECM program for seniors looking to obtain a reverse mortgage without paying the relatively high fees associated with normal Reverse Mortgages. This new “HECM Saver” program offers less overall money than a standard HECM, but in exchange does not entail paying the large Mortgage Insurance Premium fee that is charged upfront on all standard HECM programs. And for those who just want a normal reverse mortgage, the old program remains in effect, offering everyone the chance to get the right type of reverse mortgage to suit their particular needs.

You May Be Experiencing a Greater Financial Need

2009 is likely to be a year long remembered for the global financial crisis. The extent of the problem is deep, and it appears that we may experience very low growth for a long period of time.

For retirees, the economic problems are most apparent in retirement savings accounts. Anyone who had exposure to the financial markets has seen a significant decrease in their total assets. This is devastating for retirees who require these savings to fund retirement.

A Reverse Mortgage could potentially help you bridge an income gap and enable you to either postpone any withdrawals from your savings or allow you to supplement any withdrawals.

Home Equity Loans are More Difficult to Secure

A viable alternative to a Reverse Mortgage has always been a home equity loan. However, fallout from the economic crisis are making these types of loans much more difficult to get for many seniors.

To begin, housing values have fallen so much that many homeowners lack sufficient equity to borrow. Additionally, tougher income and credit requirements make these types of loans very difficult to secure right now.

Consider Timing a Reverse Mortgage with Regards to Your Whole Retirement

“Now” may be a good time for many people to consider a Reverse Mortgage.

However, your own personal situation now and in the future should be carefully analyzed.

The MetLife Mature Market Institute and the National Council on Aging recently published “The MetLife Study on the Changing Role of Home Equity and Reverse Mortgages.” The study identified four key principles that they think should guide how you use your home equity to fund retirement. Their principles suggest that your plan for using home equity should:

  • Be holistic and comprehensive – Look at all of your resources and goals and include home equity as part of a larger financial view.
  • Promote flexibility – Your plan needs to meet both your long and short-term retirement goals.
  • Accommodate changes – Financial, health and family needs and risks change as people grow older – a Reverse Mortgage should be considered in light of how life might change.
  • Seek solutions that offer overall financial security.

Reverse Mortgages Have Surged in Popularity

Seniors who were once unsure about the viability of a Reverse Mortgage are flocking to the product. Loan applications have increased 14 percent over last year and the Wall Street Journal reports that demand for Reverse Mortgages is increasing as retirement savings have lost value during the current economic crisis.

In fact, Reverse Mortgages are now held on at least 2 percent of all homes owned by seniors in the United States.

Home equity represents the bulk of most seniors’ assets. A Reverse Mortgage enables you to tap that money to use on retirement expenses. A Reverse Mortgage also enables you to eliminate your mortgage payment – representing significant savings each month.

Continue here to get rate quotes and find out if a Reverse Mortgage is right for you.

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