Ilyce Glink's Blog
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Sunday, October 05, 2008
Reverse Mortgage Information
Our first call today was from Howard. He's 75 and his wife is 65. Their house (he said) is worth about $170,000. He has a $20,000 mortgage and they are on a fixed income. They're wondering if a reverse mortgage is right for them. He went and talked to a lender who quoted them 10 percent in closing costs, which seemed high.
Darned right it's high. HUD is now the only backer of reverse mortgages. The fees were recently reduced. According to one lender who contacted me during the show, the FHA fee is 2 percent and the lenders fee was recently reduced to less than 2 percent (I think it's 1 percent). Then, you have closing costs related to title, credit score, appraisal, attorney's fees, etc.
Here's one lender's opinion of how much Howard and his wife could get and how much it would cost:
Ilyce,
I am in my office working this Sunday morning. I own a Reverse Mortgage Company locally.
I just heard the call on Reverse Mortgages on your WSB show.
Let me give you a couple of rules-of-thumbs. On the most popular RM, which is the monthly adjusting loan, the closing costs in Georgia average 5.5 percent of the appraised value. I see that number every day.
FHA gets 2 percent
My company get up to 2 percent (the new rule lowers that)
The rest of the costs cover appraisal, credit, title and Attorney etc...
My comment on the caller:
A 70 year old with a $160,000 home could receive net around $97,000. In that gentleman's situation, he owes $20,000. So after paying the mortgage, he would have access to $77,000.
I have developed an informal way to calculate the amount a senior could receive.
You take the age of the youngest borrower and subtract "9". That number is the percentage they could receive ‘net’ after closing costs. So 70 minus 9 = 61. Home value $160,000 x .61 = $97,600.
That information is based on the current interest rate on the monthly adjusting rate which is under 4 percent. The monthly adjusting rate has been at or under 4 percent for most of 2008.
Where can you go to get good information on Reverse Mortgages?
www.reversemortgage.org (from the National Reverse mortgage Lenders Association)
www.hud.gov (which backs reverse mortgages)
There is some additional information on the AARP site as well.
Reverse Mortgage News: HUD approved a single national loan limit of $417,000 for federally-insured Home Equity Conversion Mortgages (HECM, also known as Reverse Mortgages).
Reverse mortgages aren't perfect, and they're not cheap. But they're cheaper and better regulated than they were, so if you're house rich, cash poor, on a fixed-income, age 62 or older, and either own your home outright or have a very small mortgage, this could be a good choice. Labels: Reverse Mortgages
posted by Ilyce Glink at 1:08 PM
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1 Comments:
Here's some additional information from the same reverse mortgage lender:
I think I can clear up once-and–for-all where the confusion on the 10 % closing cost myth comes from.
Unlike a conventional mortgage, the FHA insured Reverse Mortgage is an ala carte program.
When establishing an interest rate for conventional loans, the lender factors in a “servicing cost”. You know what “servicing” is? I will add it here just to make sure. Servicing is the monthly cost to the lender.
To keep up with balances, customer service, preparing and sending a monthly statement. That cost is imbedded in the interest rate of the loan. It is NOT the case with an FHA Reverse Mortgage. There is a line item for each cost.
Interest Rate (Treasury Bill plus lender margin or profit)FHA MIP- ½ % per year of appraised value. This is added each month
Servicing- Usually $30 added each month.
If you took all the fees over a long period of time, it may add up to 10% over the life of the loan. The problem comes with The Clark Howard types stating that the UPFRONT fees are 10 %. Also, they do not explain that the interest rate on a reverse mortgage is way below the current interest rates on a conventional loan.
Finally, this program is a cash cow for the Government. There have been over 400,000 loans done. FHA gets 2 5 upfront. And ½ % each year the loan is active. There have been maybe 200-300 defaults over the past 20 years.
I did the math once and came up with $1.6 Billion upfront fees to FHA and $400 million per year to FHA.
These numbers are based on a $200,000 home.
I must add one more comment. I have discovered a dirty little secret since I began my company. Roughly one-third of the seniors we speak with are not getting their valid home property exemptions based on their age and income.
The county tax people do a terrible job informing seniors that there are exemptions available to them. I believe they do it for the obvious reason. If they told the seniors about the exemptions, the seniors would APPLY for them. The County would get less money.
It is really sad how often we see it.
Sorry for the long e-mail.
posted by
Ilyce Glink | October 08, 2008 3:00 PM
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