Reverse Mortgage – Is It An Possibility Below The Wholesome REITs Outlook
July 29, 2021 5 minutes to read
This story originally appeared on ValueWalk
Reverse mortgages have a bad rap. Aggressive prepayment clauses have deterred homeowners from wanting to struggle to cover taxes, insurance premiums and maintenance costs.
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However, the booming real estate business in the US could lead people to apply for reverse mortgages to – yes – invest in real estate.
Good Times to Invest?
Over the past decade, several real estate markets in the US have been money-centric while many homeowners go cashless despite the equity of their properties.
This is especially the case with many homeowners over 60 who are weighing the option of borrowing against the equity of their home in order to invest in real estate and earn a decent income.
They also recognize that “their children or other heirs may not want their home when they pass,” according to real estate investor Than Merrill.
“You certainly don’t seem to be building houses like you used to. What do your friends’ heirs do when they leave a property? In most cases, they probably can’t sell it fast enough. “
With that in mind, Forbes’ David Friedman says the growing fear of moderate to significant inflation will lead people to invest in real estate.
“Institutional buyers know that with inflation, so will property prices and rents. So now they’re choosing to buy residential property, finance it at mortgage rates that are still near all-time lows, and generate cash flow by renting them, ”he says.
Real estate outlook
With real estate investment trusts (REITs) recovering, reverse mortgage opportunities need to be explored. The COVID-19 recession is officially over, and the US economy is showing signs of a comeback with ongoing low interest rates.
In 2020, the retail sector was rocked to the core by the Covid crisis, with all ten of the largest REITs in the U.S. slashing their market caps. However, according to Kiplinger, the current plan by the Biden government to increase taxes could also give the REIT a further boost.
“Changes in tax laws can make REITs more attractive because of their structure as transit companies that are largely immune to the effects of rising tax rates.”
When it comes to reverse mortgages, Merrill points out, “How the equity in a home contrasts with the payout to make a down payment on 10 other properties. Appreciation and justice can work in your favor on several properties. “
Is Reverse Mortgage Different Now?
Reverse mortgages don’t have a good reputation due to predatory prepayment clauses and alleged lack of regulation.
In the past, homeowners could have $ 1 million in proprietary equity but were forced to pay hundreds of thousands to pay off their reverse mortgages. This was due to the high cost of the product, which included multiple fees and acquisition costs in addition to mortgage insurance premiums.
In other cases, Merrill said, “borrowers far outlived expectations, finding that they had borrowed too much and had no equity. That made it difficult for many to sell or move when property values fell. “
However, WBK partner James Milano said at the NRMLA Virtual Summer Conference in July: “Things are changing and developing … heads are opening … I really think the biggest frustration in our industry is that it is taking so long.”
The change is due to increased regulation and reverse mortgage programs that are supported by the government.
Also, today lenders cannot freeze reverse mortgage loans. This allows homeowners to invest as much equity as they see fit, save on healthcare costs, and also avoid paying a mortgage out of earned income.
In addition, people can use a reverse mortgage calculator to see roughly what their reverse loan would look like, depending on the estimated property value, the age of the person and their partner, among other variables.
People interested in real estate investing can get involved in reverse mortgages, always including both their life plan and the fine print in the equation.
According to Investopedia, you need to “explore how much you can get with each of the reverse mortgage payment options available”.
Since the product is recommended as a solution to long-term problems, it is important that people do not intend to move out of their homes. It wouldn’t make sense as the build fees can go as high as $ 6,000 with upfront mortgage insurance at 0.5% to 2.5% of the property’s appraised value.
Also, people should be able to fully cover the running costs of the property such as taxes, home insurance and maintenance as this would put the lender’s collateral at risk and declare the loan due.
In addition, borrowers must be at least 62 years old. “If you are married and your spouse is less than 62 years old, taking out a reverse mortgage is not ideal. While new laws protect your non-borrowing spouse from losing the home if you die first, they cannot receive any further reverse mortgage proceeds after you leave.