This phrase keeps ringing through my ears of late. Pay a little more now and we'll get out of debt sooner. At the rates we look at today who wants to be out of debt. It's borrow, borrow, borrowing time my friends. Here's my suggestion for those that know exactly what they want in a home.
You couldn't even begin to consider this unless the rates weren't where they are today. Add to that the unheard of prices we see out there. The problem facing Buyers today is qualifying for their mortgage, not that they can't afford it it's just tougher scrutiny to obtain the funding they want. Since we won't see too much product which contains the old no down payment or better yet the no verification funding of the past we need a product that lenders and investors can sink their corporate teeth into for the long term, a really, really long term. Let's take lessons from our government and institutional financiers.
Phase 1 begins with the 40 year mortgage. A $250,000.00 mortgage at 3% costs about $895.00 a month to fully amortize. That same loan on a 30 year payout costs roughly $1,055.00 per month. Granted there is an interest discrepancy of approximately $50,000.00 but who cares as long as the mortgage interest deduction holds. Relatively speaking we're looking at close to $180K and $130K in interest respectively. Stay with me, it gets better. Realize that you only agreed to the 40 year loan for qualifying purposes and have no qualms affording a $1,055 monthly payment if you had to. Okay, we'll get to more about that later. We save 150 bucks a month!
Since we don't see another huge downturn in the housing market any time soon the timing appears ripe for this loan to gather momentum. Consider that this is a young persons loan, great for those aged 21 to 25. Equity should be the last thing you're thinking about however know that it'll take longer to build under this 40 year segment of the plan. We'll hope that the economy can rebound to a more stable market during the majority of this time.
Phase 2 combines a reverse mortgage as you approach the age of 62. Here's where the table turns and you begin earning a tax free monthly income until the day you die. The conversion to reverse gear is seamless. A phone call or an email begins the transition or by whatever means are common in or about the year 2060. I'll anticipate a 2% growth rate compounded monthly for our purposes and in 2059 your home has about $545,000 in equity behind it. Add $100 of the $150 you've saved each month and it exceeds $615,000.
NOTE THAT AT 4% GROWTH YOU COULD ACHIEVE A $1,300,000.00 RETURN
Conceived as a way for retirees to bolster their income, the reverse mortgage now provides a vehicle which offers flexibility and peace of mind as you enjoy your Golden Years. Real estate taxes and insurance are your responsibility but as long as your health, medicare and social security remain intact you'll be able to live out your life much more comfortably than what is provided for our seniors today. The risk shall be in the hands of the lender no matter how long you live.
A bit of reverse mortgage history in the United States. The first reverse mortgage was underwritten in 1961 through Deering Savings & Loan of Maine. Not much happened with them until 1988 when the FHA got involved and offered an MIP to their packaging. Much of the guidelines were actually hammered out by an alliance of the Federal Government and AARP. In '89 the first FHA insured reverse mortgage was issued. Beginning as a test model with 50 lenders throughout the country in 1989, ten years later it was approved for all lenders in the U.S. Although the qualifications are somewhat strict about 700,000 reverse mortgages have been written. Recent years have shown a sharp decline in their use from a high of about 115,000 a few years age to about 42,000 year to date.
The jury is still out whether they hurt or harm their prospective target but with enough response about the 80 year mortgage I describe here there still may be a future for them. I say, LIVE LONG and STRONG!
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