Investors Be Careful with Reverse Mortgage Proceeds
It's no secret that the stock market is down some 30% over the last 12 months. With so many seniors with money in the market I'm starting to get a bunch of calls from a subset of this group.
These folks are attempting to use a reverse mortgage to access their home's equity. There are some excellent reasons to use a reverse mortgage. Then again, there are some excellent reasons not to.
When evaluating whether a reverse mortgage is the proper financial tool for any individual or couple I look at how long the borrower plans on staying in the home. This is important as the cost to obtain the mortgage are costly for short term reverse mortgages.
As the borrower stays in the home for longer periods the less pricy the loan becomes as we determine the cost of money on an annual percentage.
What some of these folks are wanting is to use proceeds to invest either back in the market or into other investments outside the market.
What is catching a portion of their attention is the fact that interest rates are just unbelievably low. It makes the cost of that money very attractive.
As of this week the ARM is just under four percent. In the short run this makes this loan pretty nice. In the longer run it's average is in the six percent range.
I'm in the business of getting people reverse mortgages and feel it is my duty to help my customers make good choices. One thing they should be doing is to make sure their next investment returns more than it costs.
In my conversations with the borrower I always discuss the fact that rates will not continue at their current position indefinately. They will go back up.
It is true that most economists and people in the know (perhaps you've seen them on Fox) feel rates will continue to hang out at a low level for some time.
When rates are high it is difficult for big business to borrow. This is hardly ever good, especially when the economy is in such bad shape as it is now.
I have no doubt rates will be down for some time, but it I have to wonder how much some of these borrowers are thinking through the costs as opposed to the benefits.
Whichever investment the borrowers choose should have very good returns to not only beat the interest rate on the money, but the cost of getting the reverse mortgage in the first place.
These folks are attempting to use a reverse mortgage to access their home's equity. There are some excellent reasons to use a reverse mortgage. Then again, there are some excellent reasons not to.
When evaluating whether a reverse mortgage is the proper financial tool for any individual or couple I look at how long the borrower plans on staying in the home. This is important as the cost to obtain the mortgage are costly for short term reverse mortgages.
As the borrower stays in the home for longer periods the less pricy the loan becomes as we determine the cost of money on an annual percentage.
What some of these folks are wanting is to use proceeds to invest either back in the market or into other investments outside the market.
What is catching a portion of their attention is the fact that interest rates are just unbelievably low. It makes the cost of that money very attractive.
As of this week the ARM is just under four percent. In the short run this makes this loan pretty nice. In the longer run it's average is in the six percent range.
I'm in the business of getting people reverse mortgages and feel it is my duty to help my customers make good choices. One thing they should be doing is to make sure their next investment returns more than it costs.
In my conversations with the borrower I always discuss the fact that rates will not continue at their current position indefinately. They will go back up.
It is true that most economists and people in the know (perhaps you've seen them on Fox) feel rates will continue to hang out at a low level for some time.
When rates are high it is difficult for big business to borrow. This is hardly ever good, especially when the economy is in such bad shape as it is now.
I have no doubt rates will be down for some time, but it I have to wonder how much some of these borrowers are thinking through the costs as opposed to the benefits.
Whichever investment the borrowers choose should have very good returns to not only beat the interest rate on the money, but the cost of getting the reverse mortgage in the first place.
posted by Debt Consolidation Loan at
10:16 PM
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