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Buying a house: mortgagee sale is not all roses but they can suck you

into reverse mortgages






The typical reverse mortgage borrower is a new avenue of borrowing for the younger pewrson but dangerous. Just like the subprime Collateral CDO's here a new way to get borrowing to buy that house in the USA & now in NZ as companies pamper borrowers to borrow using their home as equity and pay when you die??? But theres many catches and the biggest is the up front charges, ongoing charges, ongoing interest you may be called upon & of course the details in the contract you sign.

New reverse mortgage applicants tend to be clustered around the over 60 era ages, in the USA listerning to hyped sales man talk. What it means: A reverse mortgage homeowner will borrow money against the equity in his or her home, but not have to make any payments on it until the home is sold.

In NZ the Lifetime Loan is designed to last you the rest of your life and is usually repaid only when you die or move into long term care. It gives you freedom to repay at any time, without penalty as long as your loan is on a floating interest rate. Unlike traditional loans there are no monthly repayments - in fact there is nothing to pay until you decide to sell the house or upon your death, moving into long term care or moving out of your property for any other reason. But read on as it can have stumbling holes.


The new younger borrowers often pay off these loans more quickly than the elderly borrowers of yore. They use them as a transitional way to fund retirement, living off of reverse mortgage income during the early retirements and then selling their homes, paying off loans and downsizing later.

That may make sense for a boomer generation that is said to hold half of its net worth in home equity. But it it has high upfront fees and complexities as agencies try to extort money from prospective borrowers and its only maybe good for certain borrowers so do your homeowrk first.

If you think you might be in that narrow group, here are some considerations.

-- Look at the numbers. Bell's group offers a full-featured reverse mortgage calculator at www.reversemortgage.org. Put in your zip code, age and home value, and you will be able to see how much you can borrow AND how much it will cost you. For example, a 60-year-old with a $500,000 Auckland house could borrow as much as $306,323 at a variable rate starting at 3.99% but up-front closing costs and reverse mortgage insurance you could be looking at around $27-30,000. Note that the vast majority of reverse mortgages are part of the Home Equity Conversion Mortgage (HECM) in the USA, program guaranteed by the federal government, and while some lenders may charge somewhat more or less than others, some of the fees are established by HUD.

-- Think very long term. Obviously, if you're going to spend that much money upfront to nail down one of these loans, you need to make sure you're going to use it for a long time. If you end up selling the home a year later, you will have paid an effective interest rate that is over 10%. The longer you're in the loan, the less costly those upfront fees will be.

-- Weigh the choices. That same borrower could pay less up front if she were willing to borrow less and take a Saver loan. You can also opt for a fixed-rate reverse mortgage, which could protect you if you expect to hold it for many years and rates rise. But it could end up being expensive, because in the typical reverse mortgage, you don't have to tap all of the money at once, but if it's a fixed rate loan, you do have to borrow the full amount when you take the loan.

-- Don't go solo if you're married. Most of the problems involve older couples where the lender convinced the borrower to remove the younger spouse from the home deed and therefore, the loan. That enables the borrower to get more cash out of the house, but also makes the loan become due when that borrowing spouse dies. It can leave the second spouse in the lurch. It's safer to make sure both homeowners are on the deed.

-- Look at other alternatives. If you have home equity and are not squeezed to the max, consider a regular home equity lmortgage first. You'll have to make payments, but you will have extra cash available for home repairs and emergencies, typically at lower rates and costs, than you will with a reverse loan. Strapped retirees are better off selling their home, pulling out their equity and downsizing than hanging onto a home they cannot afford. When you have a reverse mortgage, you still have to make sure you have enough cash to keep up with the real estate taxes or home insurance.

-- Don't take a reverse loan just to invest money. Beware. If you are borrowing or have a mortgage running over age 60 then you have lost the plot & your mortgage will be not laid over to your next to kin to figure. Be debt free & keep away from Banks who want your blood & don't care about your situation---its $$$$$ they want.


  • 2013: What if your funds are being used by Banks to Rehypothecation as has happened to MF Global & Hedge funds where your funds are now susceptible to being reinvested?? Do you know what this is will if not read this [ Check this out ]




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