Seniors lose out on reverse mortgages as home values continue to decline
June 30, 2009 by admin
The latest report from Standard & Poor’s Case Schiller report showed almost a twenty percent decline in home values from April of 2008. The erosion in home values will hit the senior market especially hard as their refinance and reverse mortgage loan options will become more restricted. The month over month decline was .6%, the only silver lining in another disappointing report on the U.S. housing market. California, Arizona and Nevada all showed declines well over 25% and represent the nations hardest hit markets.
Seniors looking forward to their retirement years have faced numerous challenges over the past twenty four months. The decline in the stock market, combined with the erosion of home prices will likely make it impossible for millions of seniors who had planned to retire to fulfill this goal in the near future. Seniors have taken advantage of government backed reverse mortgage programs to help supplement their incomes and enjoy more financial freedom during their retirement. Reverse mortgages allow seniors, over the age of sixty two whom own their homes to refinance and eliminate their house payments. The loans are backed by the government and provide attractive options, as they do not require the loan to be paid back until the property is sold. In some situations, a homeowner who has enough equity may also elect to pull cash out of their property in a lump sum amount or through monthly distribution payments.
Reverse mortgages are offered by lenders who work directly with the FHA. The guidelines for reverse mortgages, are directed by HUD, and limit items such as fees, rates and ultimately the loan amount eligible. Reverse mortgage loan amounts are based on the age of the senior, county the property is located and the value of the home. As home values have declined sharply over the last twenty four months, the amount of money a Senior is eligible to refinance through a reverse mortgage has declined, in some situations, this means a senior could receive little or no cash from their homes value. Typically a reverse mortgage limit increase based on the seniors age, but as a general rule, the amount a senior may be eligible for will not exceed sixty five percent of the homes appraised value.
Reverse mortgages were always believed to be safe government investments, as ultimately (HUD) is the entity that insures the lender if the home value exceeds the amount the property could be sold for. Reverse mortgages work directly opposite of a forward mortgage as the loan balance grows larger every month. Seniors who are considering a reverse mortgage can find additional information on the AARP website, but also would be encouraged to work with a financial planner and consider all of their finance options, including a tradition mortgage, home equity loan or interest only mortgage loan to ensure they are making the best long term financial decision. The decline in home values will be a critical factor in determing the benefits a reverse mortgage may offer, choosing to wait a few years before locking in the loan may provide more risk then reward.
