Reserve mortgage products are becoming popular among Gen Xers; people born between 1961 and 1980 and represent 20 percent of the population. So popular that the loan generally offered to homeowners that are 62 or older has seen some financial institutions lower their age requirement to 55.
But before we analyze why this type of loan has gained popularity, let us address what it is. According to Investopedia.com, this is a loan offered to homeowners that are 62 or older. The homeowner must own the home, meaning that the house is fully paid for. If the home has considerable equity, the homeowner can ask the bank to loan them money as tax-free income.
Unlike a forward mortgage, the kind that most of us use to pay for our homes, the bank does not require the person to make any monthly loan payments. Instead, the financial institution disburses money to the homeowner every month, in a lump sum, line of credit, or term payments, hence the term “reverse” mortgage.
In a forward mortgage, a person must make a down payment with the lender. In the case of a reverse mortgage, the homeowner’s interest is rolled into the loan balance, and it does not require them to pay anything upfront.
In the event a homeowner dies, the home will be sold, and the proceeds will be used to cover the loan principal. However, the homeowner is required to pay back the money once they die, sell the home, or move permanently. In which case, the house acts as collateral; only the homeowner holds on to the title until they are ready to pay off the loan.
The loan is structured so that the loan amount does not exceed the home’s value and that the borrower or their estate aren’t held responsible for paying the balance if the loan was valued higher than the home value. An occurrence that can be seen if the worth of a home drops or the homeowner lives for a long time.
There are three types of reverse mortgages: Home Equity Conversion Mortgage (HECM), proprietary reverse mortgage, and single-purpose reverse mortgage. However, the most common type is the home equity conversion mortgage (HECM). HECM is offered on homes with a value of $765,600, but if your home is valued higher, you can look into the jumbo reserve mortgage.
So why would a homeowner who has managed to get out of debt by paying off their mortgage go back into debt? According to the 2020 Workplace Benefits Report, Gen Xers are displaying higher financial anxiety.
“The [survey] found that just 23% of GenXers feel a sense of progress saving for retirement; only 22% feel progress about growing their savings to pay for unexpected expenses and a mere 14% feel progress paying for current and future health care expenses,” the report read in part. Those numbers doubling for baby boomers.
Another survey from Allianz Life found that 42 percent of GenXers were stressed about their finances, further amplified financial anxiety among Gen Xers. An annual survey by TransAmerica, the median retirement savings for a GenXer is $66,000, finding a mere 14 percent “very confident” they will be able to fully retire comfortably.
Despite working for years, GenXers are financially fragile, with a majority being weighed down by debt. As a result, Gen X is saving less, depleting their emergency funds, and is less prepared for out-of-pocket health emergency costs.
Products such as reverse mortgages offer many Gen Xers some sort of security once they retire. According to RMD, the older GenXers will be able to access HECM at the beginning of 2023, and some will be able to access the proprietary reverse mortgage as soon as 2021.
About Eric Frazier:
Eric Lawrence Frazier is President and CEO of the Power Is Now Inc. The Power Is Now is a multimedia company specializing in real estate and mortgage education for consumers and real estate professionals on various topics in real estate, lending, economics, and government policy since September 1, 2009. The financial and real estate information is distributed through BlogTalkRadio, iTunes, TuneIn, and other online radio platforms nationwide, as well as online TV and eMagazines. Connect with Eric Frazier DRE 01143484 | NMLS 461807 | Office: 800-401-8994 x 703 | Direct: 714-361-2105 and start your real estate investment journey or homeownership in safe hands.
About the Power Is Now Media
The Power Is Now Media is an online multimedia company founded in 2009 by Eric L. Frazier, MBA, headquartered in Riverside, California. We advocate for homeownership, wealth building, and financial literacy for low to moderate-income and minority communities. The Power Is Now Media corporate office is located at 3739 6th Street Riverside, CA 92501. Ph: 800-401-8994 Website: www.thepowerisnow.com
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Work Cited
https://www.investopedia.com/mortgage/reverse-mortgage/
https://www.onlinemortgageadvisor.co.uk/offset-mortgages/mortgage-reserves/
https://www.nationalmortgagenews.com/news/as-gen-xers-age-reverse-mortgage-products-proliferate
https://www.housingwire.com/articles/one-lender-begins-targeting-gen-x-for-reverse-mortgages/
