Lenders eye baby boomers in reverse
Baby boomers in their 50s and 60s who took out low-rate mortgages during the 2002-05 refinancing boom now hold home loans that many won’t pay off for another quarter-century.
Tens of thousands of these people will still be paying monthly mortgage bills in their 70s or 80s - unless they take advantage of new loan products now entering the marketplace.
Bank of America and other lenders will soon offer souped-up “reverse” mortgages to help people pay off existing loans, pull out equity, establish credit lines or even buy second homes.
Reverse mortgages are special home loans in which the bank generally sends you a check each
month instead of the other way around (hence the name “reverse.”)
Offered to those age 62 or older, reverse mortgages give you either a monthly payout or a one-time lump sum of cash.
You (or your heirs) don’t have to pay this money back until you either move or die and the house is sold. At that point, the lender gets the loan’s principal back - plus fees and deferred interest - out of the sale’s proceeds.
The most popular reverse mortgage around is the “Home Equity Conversion Mortgage,” which is insured by the Federal Housing Administration.
Last year, banks wrote some 72,000 such loans - a 49 percent increase from 2005.
But HECMs have one drawback: Loans by law can’t exceed $363,000.
That’s too low to cover even median-priced homes in high-cost housing markets like the Northeast or West Coast.
Congress is currently weighing a proposal to raise the FHA’s loan limits.
But in the meantime, banks are filling the void by rolling out new “jumbo” and “super-jumbo” reverse mortgages.
Recently, Countrywide unveiled its “Simple Equity” program in 46 states, offering reverse mortgages with no set limit on how much money you can borrow.
BofA plans to soon roll out a similar product: the “Senior Equity Maximizer” jumbo reverse mortgage.
Under this program, BofA will write reverse mortgages for as much as $10 million, depending on factors like your age and how much equity you have in your home. Borrowers can get either lump-sum payouts, monthly checks or lines of credit to draw on as needed.
However, these programs have significant costs to consumers.
For openers, reverse mortgages charge higher interest rates than traditional home loans do.
Reverse mortgages also usually include substantial origination and insurance fees - typically 4 percent on HECM loans. (Countrywide and BofA say they plan to charge much less.)
Reverse loans are also inherently complicated for estate planning.
As such, I suggest pre-application counseling for any homeowner interested in these programs.
Harney is a nationally syndicated real estate columnist.
By ; Kenneth R. Harney/ The Nation’s Housing
Via : business.bostonherald.com
Tens of thousands of these people will still be paying monthly mortgage bills in their 70s or 80s - unless they take advantage of new loan products now entering the marketplace.
Bank of America and other lenders will soon offer souped-up “reverse” mortgages to help people pay off existing loans, pull out equity, establish credit lines or even buy second homes.
Reverse mortgages are special home loans in which the bank generally sends you a check each
month instead of the other way around (hence the name “reverse.”)
Offered to those age 62 or older, reverse mortgages give you either a monthly payout or a one-time lump sum of cash.
You (or your heirs) don’t have to pay this money back until you either move or die and the house is sold. At that point, the lender gets the loan’s principal back - plus fees and deferred interest - out of the sale’s proceeds.
The most popular reverse mortgage around is the “Home Equity Conversion Mortgage,” which is insured by the Federal Housing Administration.
Last year, banks wrote some 72,000 such loans - a 49 percent increase from 2005.
But HECMs have one drawback: Loans by law can’t exceed $363,000.
That’s too low to cover even median-priced homes in high-cost housing markets like the Northeast or West Coast.
Congress is currently weighing a proposal to raise the FHA’s loan limits.
But in the meantime, banks are filling the void by rolling out new “jumbo” and “super-jumbo” reverse mortgages.
Recently, Countrywide unveiled its “Simple Equity” program in 46 states, offering reverse mortgages with no set limit on how much money you can borrow.
BofA plans to soon roll out a similar product: the “Senior Equity Maximizer” jumbo reverse mortgage.
Under this program, BofA will write reverse mortgages for as much as $10 million, depending on factors like your age and how much equity you have in your home. Borrowers can get either lump-sum payouts, monthly checks or lines of credit to draw on as needed.
However, these programs have significant costs to consumers.
For openers, reverse mortgages charge higher interest rates than traditional home loans do.
Reverse mortgages also usually include substantial origination and insurance fees - typically 4 percent on HECM loans. (Countrywide and BofA say they plan to charge much less.)
Reverse loans are also inherently complicated for estate planning.
As such, I suggest pre-application counseling for any homeowner interested in these programs.
Harney is a nationally syndicated real estate columnist.
By ; Kenneth R. Harney/ The Nation’s Housing
Via : business.bostonherald.com
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