More interest in reverse mortgages as seniors' home values improve
After remaining flat or declining for seven consecutive quarters, older Americans' average home values stopped sliding late last year, according to data from Golden Gateway Financial, which tracks such information. The national average self-reported home value of older Americans rose from $369,762 in the third quarter of 2009 to $381,895 in the fourth quarter. Although home prices among the senior population are rebounding, they still remain steeply lower than 2008 levels.
While the news about national home values was upbeat in some regions, many large states, such as Florida, Texas and New York, still are reporting significant declines in prices. This mixed recovery reflects reduced inventory in some markets, while others still are flooded with homes for sale. But pockets even within these recalcitrant markets are showing a glimmer of improvement, according to the most recent S&P/Case-Shiller Price Indices, offering some optimism for seniors who rely on their homes to supplement or support their retirements.
"This is especially true for those considering a reverse mortgage, because as their home increases in value, so does their potential for greater reverse mortgage proceeds," said Eric Bachman, Golden Gateway's CEO.
Seniors with limited incomes often are tempted to get reverse mortgages, a type of home loan that lets owners convert the equity of their home into cash. The funds may be distributed in a lump sum or through monthly payments guaranteed to last for the borrower's lifetime. Some or all of the loan may be made with a line of credit the borrower draws down when necessary. The loan may be paid back either when the owner moves out of the home or dies; it is paid off from proceeds from the sale of the home.
Some homeowners 62 and older interested in reverse mortgages have been put off by the prospect of such a loan as home values plummeted over the last half-decade. In addition to worries about sinking home values -- and thus smaller loans -- reverse-mortgage borrowers pay a big premium to get the loans, including upfront insurance premiums equal to 2% of the home's value and origination fees up to 2% of the property's value. Add to that mortgage closing costs, appraisals and title insurance (which can cost $3,000). A home appraised at $400,000, for example, could result in $17,000 closing fees, brokers say. And monthly service fees can run $30 or so. The up side: All those fees may be tacked onto the loan balance, so borrowers don't have to pay them out of pocket.
In addition to news of the uptick in seniors' home values, the Golden Gateway Financial data revealed that the average age of those getting reverse mortgages in 2009 was about 69.4. The average maximum up-front payment shrank from $136,711 in the third quarter to $132,912 in the fourth, and the average maximum monthly payment slid from $993 to $863 during those same periods.
Despite the real estate doom and gloom, reverse mortgages still have their appeal, apparently.
"I was scared to death to get into a reverse mortgage," said Larry Reznick, 72, a Fullerton, Calif., owner who got the loan in November. "But my wife and I plan to stay in our house for another 15 years, if we're lucky, so we think it's worth it."
As values continue to inch up in California, at least, others may think so too.