Should you get a Reverse Mortgage at Age 62

Question from one of our readers...

"The question I have regards whether or not the loan is good for me at my age, 62. I'm interested in finding out if other people have done similar things with the idea that getting the money sooner and investing it makes long-term good sense." -Richard

Hey Richard,

To answer this completely would require a fully functioning crystal ball and unfortunately, mine broke several years back! We do have several borrowers who are doing the same thing you are doing and taking out a reverse mortgage at this stage in their lives, especially now while the opportunity is so ripe. I personally cannot fault this line of reasoning for several reasons.

Firstly, all indications right now are that reverse mortgage rates have to go up. If and when they do, this will adversely affect the amount of money that a reverse mortgage borrower will receive and the interest rate is one of the determining factors in the formula to determine the amount of cash you receive. The higher the rate, the less cash you get and the faster your equity erodes. Locking in a lower rate makes a lot of sense. How long they will stay up is anybody's guess. Based on the amount of debt our country has accumulated, it does not appear as though we can leave rates low much longer or that they will be back down any time soon. This is one place that crystal ball would sure come in handy!

Secondly, your home's value is greater than $417,000. You must remember that the permanent national limit is $417,000, the current limit of $625,500 is a temporary limit which is set to expire on September 30, 2010 if not voted by Congress to extend. Therefore you would lose the additional value's worth of eligibility. Again, depending on future events and a Congressional Vote that we cannot predict. In fact, this is not an automatic vote, it is currently set to expire and any extension of the $625,500 limit would have to be brought up and then voted on and passed.

Thirdly, right now, due to the extremely good secondary market for HECM fixed rate loans, you can get a 0 dollar servicing fee and no origination fees which has never been available in the past and will only be available for as long as the loans continue to sell as well as they are currently. This has only been available for the last 30-60 days on the origination fees and only just within the last week on the servicing fee which will save you over $10,000 in fees and set asides. One more item that no one can predict how long this will be available.

Finally, in October of 2009, HUD lowered the Principal Limits by approximately 10%. They did not lower the Lending Limits (which is currently $625,500 until 9/30/2010 and then will revert back to $417,000 if not extended at the higher limit by congress), but the Principal Limit which is the actual amount the borrower receives under the program based on their age, the value of the property and the interest rates. Your current quote shows a Principal Limit of approximately $355,000.

There is current discussion of two changes to the reverse mortgage program which MAY take effect this coming October 1, 2010 (the beginning of the fiscal year for HUD). They are currently discussing raising the monthly mortgage insurance from .5% per month to 1.25% per month on all new loans originated after that time and they have stated that they may have to initiate another cut in the Principal Limits. IF they make one or both moves, then your monthly costs would increase for HUD mortgage insurance and the cash you receive could be cut back significantly. As with all the other items that rely on future events, these are things that are currently being discussed but we have no way at this time of telling you whether or not they will come to pass.

The bottom line is this, the costs have never been lower and at a zero servicing fee and zero origination fee, they can only go up in the future. Rates have been low for quite some time and you need to decide what you think they will do in the future. I have to agree with almost every economist I have heard in that rates have to go up from here and not down. All external indicators (rates, fees, programs) show that this is probably the best time now to obtain a reverse mortgage and is likely to be in any near future anyway for the sake of obtaining a reverse mortgage. Only YOU can decide if it is the right move for you.

I would welcome the opportunity to discuss these factors further. It is not my intention to try to "stampede you" into any decision, but I do want to make you totally aware of all the ramifications of action vs inaction and what you may want to think about if you decide to go ahead with the loan as well as what could happen if some of the things I have mentioned above come to fruition which could make a reverse mortgage no longer a viable option for you in the future. Don't get me wrong, if the lending limits do go back to $417,000 you will still probably get enough to pay off your existing mortgage, but you would not have the leftover cash you anticipate for investment. I hope this has been helpful. I'm sorry I could not be more definitive, but as you can see, so much depends on future actions which I cannot predict.

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By Michael G. Branson, CEO - All Reverse Mortgage Company

email: mike@allrmc.com

Phone: (888) 801-2762