Reverse Mortgages Hit New Records

As a record number of baby boomers enter retirement, the volume of new reverse mortgages is also shattering records. Senior mortgages are one of the areas of lending growth that's plowing ahead, despite the demise of many other kinds of loan products tied to the housing market.

The overall number of reverse mortgages has seen a significant jump, despite sluggishness in the market, and the rate of demand for these senior mortgages for those in retirement is expected to continue to climb.  The number of reverse mortgages has been somewhat restrained by the fact that home prices have fallen drastically.  Plummeting prices reduce the amount of payback to someone in retirement from this type of equity-based senior mortgage.  But the setback is not severe. Millions of homeowners who are 62 or older are still rushing to take advantage of reverse mortgages.  As more baby boomers cross the threshold into retirement, that phenomenon will only accelerate.

Reverse mortgages for retirement income

The reverse mortgage is essentially a tax-free home equity loan that provides retirement income to seniors who have mortgages that have already been paid off, or have relatively low principal balances. In addition, recent changes in rules governing reverse mortgages make them more attractive for retirement planning for two reasons.  First, they have a high level of transparency regarding fees and costs that seniors pay; and second, they now can be made in higher amounts up to $417,000. This dollar amount applies regardless of where you happen to live.  In the past, your reverse mortgage amount was subject to limitations based on your region's typical home prices.

• The loan industry successfully completed more than 112,000 reverse mortgages under the Home Equity Conversion Mortgage (HECM) program this year, and nearly that many last year. (The HECM reverse mortgages are senior mortgages that have the additional benefit of being insured by the FHA.)

• Reverse mortgage activity spiked more than 40 percent between 2006 and 2007, more than doubling the number of senior mortgages that were written back in 2005.

• Thanks to the higher reverse mortgage loan limits that have been approved under provisions of the Homeownership and Economic Recovery Act of 2008, approximately 30 percent more people can now qualify for these attractive retirement income products.

Senior mortgage last ray of hope

Because retirement portfolios have suffered devastating losses this year-and especially within the past month or two-growing numbers of baby boomers are seeking alternative retirement income strategies. Many had already looked into the possibility of taking out a reverse mortgage, and with their stock portfolios and employee pension plans now suffering so badly, they're joining the ranks of those who see the reverse mortgage as their last ray of hope for a stable fixed income. These senior mortgages allow the homeowner to tap equity without selling their house or moving, and the funds can be taken in a lump sum, monthly installments, or through a line of credit, making them predictable and convenient.