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Reverse Mortgage-Keep Your Home and Make Money

Wednesday, November 5, 2008 posted by Tommi Crow

 High energy costs, the stock market crash and the dismal housing market have converged to make 2008 one of the scariest economies in over 70 years.  Many people fear that they can not meet their monthly expenses this winter.  Further, many feel trapped, living in houses that they can not afford  and can not sell.   One answer for those over the age of 62, may be a Reverse Mortgage.

 

What is a Reverse Mortgage?

A reverse mortgage is a program for Seniors age 62 and older.  The program enables homeowner’s to receive part of their home equity as tax-free income without having to sell their home, give up title or pay a mortgage payment.

How Does a Reverse Mortgage Work?

The homeowner pledges the home as collateral for the loan, but does not make any mortgage payments on the amount borrowed.  The borrower receives their equity as a lump sum, a monthly payment, a line of credit, or a combination of the three.   The amount owed to the lender can never exceed the value of the home

No money needs to be repaid to the lender until the borrower no longer occupies the property as a principal residence.   If the borrower dies, sells the home or moves, the lender will sell the property to pay back the loan.   If the amount owed is less than the sales price, the excess money is returned to you or your estate.

What Can I Use the Money For?

The money you receive can be used for anything.  You can use the funds to supplement your retirement income, repair or remodel your home, pay for health care, living expenses, pay off debt, buy a new car, take a vacation or prevent a foreclosure.

Why Should You Avoid a Reverse Mortgage?

If you intend to leave your home within 2-3 years, there are less expensive options you may want to consider.  Because of the upfront costs associated with a reverse mortgage (approximately 2-3 percent), home equity loans or a tax deferral program may save you money on borrowing costs.

If you want to leave your home to your heirs, you should also consider other options.   In most cases, the home will have to be sold in order to pay back the reverse mortgage.  A better option would be to sell the home to your heir’s now, and rent it back from them for your lifetime use.

How Did Reverse Mortgage Get Its Name?  

It is called a reverse mortgage because the typical flow of money is reversed.  Instead of the borrower making monthly payments to the lender, as is customary, the lender makes payments to you.

How Do I Find Out More About Reverse Mortgages?

The non-profit site Reverse Mortgage has all the facts and information you need to make a decision.  Topics on the site include the rates charged by different lenders, info about the effects of reverse mortgages on social security, medicare and medicaid benefits, special requirements and a whole lot more.

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4 Economic Prediction’s for 2009

Tuesday, October 28, 2008 posted by Tommi Crow

As the owner of a small, woman-owned business for the last 25 years, I have experienced a lot of market up’s and down’s.  And, while the 2008 market is unique to itself, it does have similar traits with other declines in the real estate, financial and equity markets that we can draw from.

So, what does my experience tell me about predictions for equities and housing in 2009?

  1. Housing has further to fall in 2009.    Housing has a bit further to fall as inventories remain at historical highs, and new inventory is being added daily.   We are currently foreclosing on 10,0000 homes per month on average, and the end is no where in sight.  The numbers of loan deliquencies and defaults are increasing, keeping downward pressure on home prices and upward pressure on unsold inventory.  
  2. More Trouble Finding or Keeping A Job in 2009.   The U.S. unemployment rate is growing along with the national debt.    As business continues to slow, we will see more layoff’s and company closings in industries such as building and contruction, financial’s, auto’s, airlines, travel and retail.
  3. Credit Problems in 2009.   Lenders will be very cautious about loaning money, even to their best customer’s, until they divest themselves of unperforming assets.  The spread’s on mortgage rates will remain high in 2009, increasing the costs to borrow.
  4. Wall Street in 2009.   The stock market looks forward, not backward.  The recent sell off was not caused by horrific events which occurred in 2008 or earlier.  The recent, unprecedented stock market decline, tells us that Wall Street expects and has priced in, that 2009 will be one of the worst ecomonic periods in U.S. history.   If the street thinks the economy will improve in 2010, then 2009 should be an up year for equities.  But, sit on cash for now, as it is really too early to tell.

For all the reasons above, I do not see a rosy 2009.  But, that being said, I do see the opportunities that will present themselves.   With regard to housing, I think we are nearing the bottom and price declines indicate that a lot of the risk is off the table.  For those that are investing in real estate for the long term or for a place to live, I don’t see prices getting remarkably cheaper from here.  Buyer’s planning to hold for five years would probably do well to take advantage of today’s interest rates.  I see higher lending costs in the future, due to government borrowing, earning slowdown’s and regretable past mistakes.

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