Reverse mortgage take-up growing: study

The value of Australia's reverse mortgage settlements grew almost two thirds last year as retirees tapped home equity to supplement income, a new study shows.
Settlements of new loans grew to $520 million as of December 31 compared with $315 million a year earlier, according to a reverse mortgage study co-authored by actuarial and consulting firm Trowbridge Deloitte.
Some 27,500 reverse mortgages, where lenders make advance payments to owners against the value of a property, were made last year in a market now worth some $1.5 billion, according to the study.
The results highlight how a growing number of product providers and distribution channels has helped the loans gain wider acceptance, said James Hickey, a partner at Trowbridge Deloitte.
"This growth coincides with an increase in the number of product providers, providing improved product flexibility and wider distribution channels," he said.
The study showed use of mortgage brokers to secure the loans is growing.
While 72 per cent of all outstanding loans sales were still direct with the lender, some 46 per cent of loans made in 2006 were through brokers.
That's up from 38 per cent a year earlier.
The average age of borrowers was steady at 74, while the average age of new borrowers last year was 72, the study showed.
Lump sum advances made up 80 per cent of loans with regular draw downs accounting for the remainder.
That shows many home owners are using reverse mortgages to supplement pensions, said Kieren Dell, executive director of Senior Australian Equity Release Association of Lenders (SEQUAL) which co-sponsored the study.
"An increasing number of Australian retirees are recognising the benefits of reverse mortgages," Mr Dell said.
"The increasing use of regular draw downs indicates that these seniors are using the funds more and more to supplement their pensions rather than using their equity for one-off spending."

What is an offset mortgage?

Mortgage life insurance is voluntarily. It is the decision of the borrower to sign up for the mortgage life insurance. In order to see the need, the borrower must sit with a certified insurance agent. The insurance agent will analyze the overall financial picture of the borrower.

Depending on the insurance policy, the insurance company pays for the entire mortgage or maximum amount. For example, the insurance company pays up to maximum of $600,000. If the mortgage went over the maximum amount, the insurance company repays the portion of the mortgage up to the maximum amount.

The insurance policy starts at the same day of the approval on mortgage. Even though the borrower has not paid the first mortgage payment, the borrower still gets the benefit.

Since the borrower receives no the interest on savings account, the borrower do not pay the tax on interest on savings account. Naturally, the interest on savings account will be use to pay off the mortgage interest. In United Kingdom, many borrowers are on a high tax bracket. The borrower often sees the forty percent of the interest goes to tax.

Using the interest on savings account, the borrower uses pay off the mortgage interest. In other words, the interest on savings account cancels out the mortgage interest that the borrower pays on a conventional mortgage.

The borrower usually purchases home thru mortgage. It takes a huge amount income to pay off the mortgage. In case of critical illness, debilitating accident, or depressing death of the borrower, the family needs to replace the loss of income to pay off the mortgage. With mortgage life insurance, the family does not need to worry about repaying the mortgage.

Mortgage life insurance differs from private mortgage insurance also known as PMI. The PMI protects the mortgage lenders in case of default of mortgage payment. The mortgage lenders risk the inability to re-sell the property high enough to pay off the mortgage. When the borrower lacks enough money for twenty percent down payment, the mortgage lenders requires PMI. As soon as borrower pays off or the home equity reaches twenty percent, the mortgage lenders automatically cancel the PMI premiums.

The offset mortgage originally started from Australia. Later, the offset mortgage rises in popularity in the United Kingdom. Before, the mortgage lenders only target the wealthy. Now, the mortgage lenders are widening the market for this type of mortgage.

In many times, the borrower pays a loan to value ratio of ninety five percent. That means the borrower pays five percent as down payment. Due to competition, many mortgage lenders may offer as low as loan to value ratio of eighty percent.

Author: Dennis Estrada

Mortgage Life Insurance

The offset mortgage is a type of mortgage in which the borrower can use their savings account to offset the mortgage interest. The mortgage interests are substantial amount especially at the start of the mortgage.

Mortgage life insurance is voluntarily. It is the decision of the borrower to sign up for the mortgage life insurance. In order to see the need, the borrower must sit with a certified insurance agent. The insurance agent will analyze the overall financial picture of the borrower.

Depending on the insurance policy, the insurance company pays for the entire mortgage or maximum amount. For example, the insurance company pays up to maximum of $600,000. If the mortgage went over the maximum amount, the insurance company repays the portion of the mortgage up to the maximum amount.

The insurance policy starts at the same day of the approval on mortgage. Even though the borrower has not paid the first mortgage payment, the borrower still gets the benefit.

Since the borrower receives no the interest on savings account, the borrower do not pay the tax on interest on savings account. Naturally, the interest on savings account will be use to pay off the mortgage interest. In United Kingdom, many borrowers are on a high tax bracket. The borrower often sees the forty percent of the interest goes to tax.

Using the interest on savings account, the borrower uses pay off the mortgage interest. In other words, the interest on savings account cancels out the mortgage interest that the borrower pays on a conventional mortgage.

The borrower usually purchases home thru mortgage. It takes a huge amount income to pay off the mortgage. In case of critical illness, debilitating accident, or depressing death of the borrower, the family needs to replace the loss of income to pay off the mortgage. With mortgage life insurance, the family does not need to worry about repaying the mortgage.

Mortgage life insurance differs from private mortgage insurance also known as PMI. The PMI protects the mortgage lenders in case of default of mortgage payment. The mortgage lenders risk the inability to re-sell the property high enough to pay off the mortgage. When the borrower lacks enough money for twenty percent down payment, the mortgage lenders requires PMI. As soon as borrower pays off or the home equity reaches twenty percent, the mortgage lenders automatically cancel the PMI premiums.

The offset mortgage originally started from Australia. Later, the offset mortgage rises in popularity in the United Kingdom. Before, the mortgage lenders only target the wealthy. Now, the mortgage lenders are widening the market for this type of mortgage.

In many times, the borrower pays a loan to value ratio of ninety five percent. That means the borrower pays five percent as down payment. Due to competition, many mortgage lenders may offer as low as loan to value ratio of eighty percent.

The interest on savings account is big enough that many mortgage lenders may offer to repay any amount without mortgage penalty. In a conventional mortgage, the borrower pays mortgage penalties on any repayment over the maximum limit to repay the mortgage early.

Usually, the mortgage lenders link the mortgage and savings account into a single account. Therefore, the borrower sees only one balance. This is more commonly known as Common Account Mortgage (CAM). For example, the borrower takes $300,000 mortgage. The borrower uses the savings account that is worth $100,000 to offset the mortgage interest. In return, the borrower only pays interest on $200,000.

Author: Dennis Estrada

Fancy an interest-free loan to buy a house? (Australia)

author: unknown

Hearing the word 'mortgage' always makes me wince. Words like oppression, fear and 'will-I-be-dead-before-it's-paid-off?' come to mind. I can smell my mortgage broker's polyester shirt and hear the life-threatening sound of the pen signing away my life's earnings.

But when I heard about 'shared-equity mortgage', no such fears invaded my senses. All I could think was, 'that's interesting', 'good idea' and 'can't-wait-to-see-if-and-when-it-will-ever-happen'.

The day is nearing for the Australian launch of shared-equity mortgages -- a new financing arrangement allowing people to borrow 20% of the value of a house, interest-free.

So what's the catch?

You have to pay 40% of the capital gain on the house back to the lender when you eventually sell the property.

Some people might not find this such an enticing idea, but these shared-equity mortgages will be available through an Adelaide bank and mortgage brokers when launched in the next few weeks.

You can read more about these shared equity mortgages in this wonderful story by Simon Hoyle or this one by The Australian's Anna Fenech. If you want a basic explanation of them, check out this slide show I made (you'll have to be a quick reader because my mastery of technology didn't allow me to make this slideshow work terribly well -- thank God for the stop button).

View slide show

The finer details have yet to be announced -- but Rismark founder Christopher Joye has confirmed the shared-equity mortgage product (also called an EFM) will launch soon.

The shared-equity mortgage works as a second-mortgage, as most people will still need a traditional mortgage to purchase the remaining 80% of the property. Alternatively, this type of mortgage might appeal to income-poor, asset-rich retirees who don't want to risk using a reverse-mortgage.

Apparently there will be no penalty on the borrower if property prices actually fall -- they will simply repay the interest-free loan. There will also be a renovation provision, to allow property owners to renovate their property and recoup the "capital improvement cost" later on.

After I accidentally entertained a press conference by phoning in to what I thought was a private line and admitting I work from my spare bedroom in my pyjamas, Rismark and RP Data announced the launch of new property price indices and a residential property derivatives trading market.

Before your eyes glaze over at this financial news, this launch is the first stage of Rismark's planned roll-out of a range of innovative residential property products. These new products could eventually change the way we buy residential property, offering things like Home Value Protection Insurance to allow homebuyers to insure against the risk of falling property prices.

Property analyst Michael Matusik says he applauds such ideas as one way to break the deadlock of the affordability crisis. "Affordability won't improve overnight, but the idea is the tip of the iceberg as one way to make owning property more possible for people," he says.

So what do you think? Would you be interested in a shared-equity mortgage? Will they work to give more people a leg-up into the property market?

Equity lenders prepare to take on reverse mortgages

Wednesday, 14 Mar 2007 11:25AM

Shared equity lenders are preparing for a turf war with reverse mortgage lenders for the retiree equity release market. The first non-government shared equity loan, Rismark's equity finance mortgage, is being marketed at this stage to first home buyers and families that want to trade up, but it will not be long before the product is being offered to retirees.

Rismark International managing director Christopher Joye said the package being offered by Adelaide Bank was not targeted at retirees but future product releases would be.

"We think shared equity will compete very strongly with reverse mortgages," Joye said.

"It is a more flexible product. There are no age-based limits. And we would argue the risk to the borrower is much lower.

"A retiree could use either product to release equity from their home. The risk they run with a reverse mortgage is that they end up with no residual equity in their home. With our product the borrower will never owe more than 40 per cent of the value of the property. Retirees are risk averse. Why would they take the risk of being left with nothing if they had an alternative?"

Greenway Capital, a start-up equity mortgage specialist that plans to launch an equity mortgage by mid year, has said that it will target the baby boomer and retiree market.

Greenway chief executive Peter Martin said yesterday that his group's product would be a "pure" equity mortgage (not linked to a conventional mortgage) that would offer up to half of the value of the home.

Martin said Greenway would market to home buyers but also to home owners who want to access equity in their home.

At stake is a market that is small but growing very fast. According to a report released last October by consulting group Trowbridge Deloitte, loan balances grew from $459 million in December 2004 to $848 million a year later, an increase of 85 per cent. At June 2006 balances stood at $1.1 billion.

The number of accounts increased from 9700 in 2004 to 16,600 a year later, an increase of 71 per cent. At June 30 the number of accounts stood at 20,300. Trowbridge Deloitte said the average borrower is 74 years old and borrows an average of $53,500.

www.thesheet.com

Financial Coach: Reverse Mortgages Offer Seniors Relief from High Interest Mortgages

    CLEVELAND, March 14 /PRNewswire/ -- As national attention becomes
increasingly focused on the crisis in the housing market, a financial coach
and registered investment advisor believes reverse mortgages may be the
answer for some cash-strapped senior citizens trapped in high interest
mortgages.
 "Many seniors are fearful of reverse mortgages because they simply
don't understand them and how they can benefit from them," said Kevin
Kroskey, owner of True Wealth Design, Inc. of Greater Cleveland. His firm
specializes in providing sound advice on home-equity management. Kroskey
said too many seniors have high-interest mortgage loans when they could be
reaping some of the benefits of government guaranteed reverse mortgages.
Kroskey recalled a recent situation involving an elderly couple who lost
their home. "During the bankruptcy proceedings, the couple could have kept
their home if they utilized the option of a government guaranteed reverse
mortgage," Kroskey said.
 While reverse mortgages are beneficial for seniors with rising mortgage
payments, they can also benefit seniors who have no mortgage payments. The
benefits include guaranteed income growth, ready access to money, and a
hedge against inflation, Kroskey said.
 He provided this example: A senior couple with a home valued at
$150,000, of which the mortgage has been paid, could obtain a reverse
mortgage credit line of $69,580. Assuming the line is simply established
and no withdrawals are taken, this credit line is guaranteed to grow at a
rate currently above 7% (7.28% as of 3/7/07) and changes monthly. In 20
years, if no withdrawals are taken and assuming the same initial growth
rate each year, the credit line will be worth $283,825. Meanwhile, if their
$150,000 home appreciates at an average rate of 3%, in 20 years their home
would be worth $270,917 or almost $13,000 less than the credit line's
worth!
 In the same example, Kroskey said if the couple does not get a reverse
mortgage, they may end up depleting their savings and investments, if
emergency circumstances require the need for quick cash to pay for things
like home health care, assisted living or nursing home care.
 A reverse mortgage may not be everyone. Kroskey, however, urges all
seniors 62 and older to learn more by visiting AARP's website-
http://www.aarp.org/money/revmort.
 FOR MORE INFORMATION CONTACT:
 Kevin Kroskey, MBA at 216-373-7670

SOURCE True Wealth Design, Inc.

Fixed rates return to reverse mortgages

Published Wed, 14 Mar 2007 12:00:00 GMT

Lenders aim to attract borrowers with lower costs

Tom Kelly
Inman News

Many older homeowners prefer reliable, dependable mortgage interest rates. It helps them plan their monthly financial calendars, especially when they are battling the challenges of paying for health care on fixed incomes.

Fixed-rate mortgages have been absent from the reverse-mortgage scene for more than decade, as lenders relied primarily on adjustable-rate mortgages insured by the U.S. Department of Housing and Urban Development. These mortgages, known as Home Equity Conversion Mortgages (HECMs), account for nearly 85 percent of the reverse market.

BNY Mortgage, which recently announced it would trim the interest rate charged on the adjustable-rate HECM, introduced two fixed-rate reverse-mortgage products on March 5.

The first, called the New Generation HECM, is similar to the current FHA/VA rate and hovers near 6.5 percent, not including the mandatory mortgage insurance premium. The interest rate is tied to the one-year CMY, or constant maturity treasury index. The second product, the Fixed Prime Advantage, is a "jumbo" product for loans greater than $405,000. The rate, which will be set at closing, is the prime lending rate plus .99 percent. That rate recently was a tick over 9 percent.

"By offering more options to seniors, we feel strongly that we are making reverse mortgages more accessible for today's senior homeowners," said Sarah Hulbert, executive director for BNY Mortgage's western regional center. "Seniors who previously were put off by the adjustable-rate options will now have fixed-rate options, and seniors who previously did not qualify for a reverse mortgage due to insufficient loan proceeds will now be eligible."

Reverse mortgages allow senior homeowners, with a minimum age of 62, to receive proceeds from a lender -- either in a lump sum, regular monthly payments, a line of credit or in a combination of those options. When the house is sold, or the last remaining borrower dies or moves out of the home, the loan amount plus the accrued interest is repaid. The borrower can't owe more than the value of the home. The HECM program has insured more than 240,000 reverse mortgages since 1990, while private "jumbo" reverse plans also have been available.

Wells Fargo Home Mortgage, the nation's leading retail originator of reverse mortgages, announced it also has trimmed the margin it charges on the HECM adjustable by 50 basis points. Seniors who have already applied for a reverse mortgage with Wells Fargo will be offered the lower margin.

"Reverse mortgages are about making the most of the equity that seniors have built into their homes," said Jeff Taylor, vice president of Wells Fargo's Senior Products Group. "By lowering the margin, we are lowering the interest rate charged on a reverse mortgage. This means more seniors will be able to use the reverse-mortgage program, giving them the ability to turn their home equity into additional retirement funds."

Providential Home Income Plan Inc., a venture capital-funded company whose sole purpose was to originate and service reverse-mortgage loans, offered a fixed-rate reverse mortgage in the early 1990s. While the company was one of the first to begin offering a program to enable seniors to tap the equity in their homes, some of loans contained the controversial "equity share" component, giving the lender a significant portion of the appreciation in the home. Often, that portion was 50 percent of a rapidly appreciating home, leaving some homeowners in debt when the senior died or moved out of the home. The "equity share" component no longer is included in reverse mortgages and is a key reason for the popularity of today's products.

In 1996, Transamerica HomeFirst purchased the reverse-mortgage servicing assets of Providential. Three years later, Financial Freedom, the Irvine, Calif.-based company specializing in jumbo reverse mortgages, purchased Transamerica HomeFirst.

Dr. Barbara Stucki, a Bend, Ore., researcher and consultant, completed a study for the National Council on the Aging that supports tapping into home equity via a reverse mortgage as the critical financing vehicle to help seniors afford long-term care services at home.

"There is simply no other pot of funds sitting around that is going to solve the long-term care situation in this country other than home equity," Stucki said. "I just don't see any other way -- unless people simply want to dig deep down and pay out of their pockets. The idea is to use your home to stay at home."

Tom Kelly's book "Cashing In on a Second Home in Mexico: How to Buy, Rent and Profit from Property South of the Border" was written with Mitch Creekmore, senior vice president of Houston-based Stewart International. The book is available in retail stores, on amazon.com and on tomkelly.com. Tom can be reached at news@tomkelly.com.