Maggie's Blog

Some lenders have eliminated the principal limit lock. What does this mean to you? If interest rates go up during your loan process, you receive less money! Since we have access to all major reverse mortgage lenders, we still offer the principal limit lock. 
If you want to secure the amount available to you, contact us today or visit us on www.rmnevada.com!

At the Mortgage Bankers Conference in Miami, Brian Montgomery announced that the new HECM loan limit is $417,000.

On October 2nd, HUD announced that the loan limits will increase to $417,000 with a target date of November 1st. A mortgagee letter will explain other details regarding bill HR 3221, Housing and Rescue Act of 2008 signed into law on July, 30th. While it's good to know the date of the lending limit increase and the amount, we're still left in the dark on details of the bill such as HECM for purchase, co-ops, new standards for manufactured homes and lower origination fees until the mortgagee letter is issued. We expect the letter to come out near November 1st. Reverse Mortgages are all we do - we know and understand the changing marketplace and will keep you updated on changes. We provide accurate answers to all of your questions and are fully committed to helping our clients live the life they CAN afford. 

Age is one factor in determining the amount available from a reverse mortgage.  The best age to get a reverse mortgage depends on various factors.  Is there an existing mortgage with payments that create a financial strain on the budget?  What is important to the individual or couple, making the most out of life or retaining the most equity as possible for their heirs?  Is your existing financial situation fine at this time and do you want to preserve your equity for later years when financial needs may be greater?  The best time can only be determined by you and perhaps your family and your current financial status, your future needs, your concerns and personal attitudes and beliefs.  If you are ready, we are approaching a great time to get a reverse mortgages as interest rates are declining and the lending limits will be increased soon.

I hear from  people want to wait until they get older to get a reverse mortgage for the simple reason that reverse mortgage calculations provide more money at an older age.  This strategy on the surface makes sense but this strategy could backfire as there are other factors in play to determine the amount available from a HECM reverse mortgage.  The three factors in determining the amount available from the HECM reverse mortgage are age of the youngest borrower, current expected interest rate and appraised value of the home or FHA maximum claim amount, whichever is lower. Many people are not aware how dramatically the loan amount is affected with just a one point increase in the interest rate.  It could be very disappointing to wait and find the amount available is dramatically lower after waiting a few years.  Below is an example based on the amount available to a borrower at age 65 at the expected interest rate (current, and age 68 at one point higher and two points higher.  Notice the amount available, whether lump sum or monthly stipend is dramatically lower when calculated at a higher interest rate.

Age                  Home value               Rate                             Lump sum/LOC  or        Monthly Stipend

65                    $350,000          5.56%                          $207,000                     $1,180

68                    same                6.56%                          $168,600                     $1,077 

68                    same                7.56%                          $136,500                     $969 

The reason less money is available with the higher interest rate is because of the way a reverse mortgage is structured, in that payments are not made over the life of the loan.  At a higher rate the lender assumes the balance will increase more rapidly, therefore they provide less money initially.        

 Let's look at an example with the home value appreciating to $417,000 by the time this borrower is age 68 but the rate is 2 points higher. (assuming the FHA maximum claim amount will be $417,000 by then). The amount available is $164,000, still much lower than the amount today at the current rate.  But with the increased value, closing costs increase by $1,100.  So waiting created less money available to the borrower but added more to the loan balance in fees because of the higher value.  We don't know what interest rates or home values will be in the future, but we do know what is available today.  And interest rates are at near historical lows.  The best strategy may be to take out the reverse mortgage now, even if you don't need the money until later because you can leave the money in the line of credit which will increase at the same interest rate that's charged on the balance, so you can be certain the amount available will be higher in the future.  This strategy minimizes the guesswork in timing your reverse mortgage transaction.

Other advantages of doing the reverse mortgage when rates are low is a lower cap on the adjustable rate reverse mortgage and if a fixed rate reverse mortgage works well for you, the low rate will certainly preserve equity for your heirs when the loan becomes due. 

On the date this article was written, the Housing and Recovery Act of 2008 has been signed into law, but not yet implemented.  Many prospective reverse mortgage borrowers with high value homes are waiting for the lending limits to increase, and for good reason.  The increased limits will provide more money and the current economic situation does not indicate interest rates will jump over the short term.  Let's hope home values don't slide before the new FHA lending limits are implemented.  If your home value is within the current lending limits, your best bet is to do the reverse mortgage now.

Written on 9/16/2008 by:  Maggie O'Connell, maggie@rmstore.net  www.ReverseMortgageStore.com &      www.ReverseMortgagesofNevada.com     

Disclaimer: Maggie's Blog does not guarantee nor is in any way responsible for the accuracy of the information provided herein, and provides said information without warranties of any kind, either expressed or implied.  Blog posts on Maggie's Blog represent the opinions and ideas of the author(s). Maggie's Blog does not express the views of  Reverse Mortgages of Nevada or those of the broker.

Music and reverse mortgage recordings - adding that personal touch? In this recording, I add in my piano playing as background to some recorded client testimonials and reverse mortgage discussions. It adds that 'personal touch'- what do people think?

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On this podcast, I discuss one of the comonly asked- about fees regarding reverse mortgages - the servicing set-aside fee. I explain what this is and how it works. Keep watching for further recorded discussions on other fees.

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The above recorded client testimonial outlines how this client used her reverse mortgage to provide a home downpayment for her daughter. A very interesting use for a reverse mortgage - to be more common, perhaps, now lenders are more likely to ask for downpayments?

Click on the icon to read about how current Housing Legislation is poised to benefit senior homeowners looking into reverse mortgages - this feed is updated regularly with news and updates.

We broker reverse mortgages offered by these major lenders:
Everbank, Bank of America, Financial Freedom (Indymac),Metlife.

*Note: Rates change daily and differ between lenders: Contact us for further information and to request a TALC for total costs or visit our Nevada website!