Washington Home Values and Reverse Mortgages
March 15th, 2007
Home values in the State of Washington continue to rise and many senior homeowners are starting to look at ways to tap into the equity they have in their homes to help pay retirement living expenses. The Office of Federal Housing Enterprise Oversight (OFHEO) recently released it’s quarterly home price index showing Washington ranking fourth in the nation with a growth rate of 13.7% for 2006 (66% for the last five years).
For many Washington retirees, their home has been their best investment and represents the biggest part of their savings. Reverse mortgages are being heavily marketed to these homeowners as a way to turn home equity into cash. A reverse mortgage is a program where the homeowner borrows against the equity in their home, but makes no monthly loan payments to the bank. Instead the loan (plus interest) accumulates and is paid off when the homeowner sells, moves out or dies.
In the right circumstances, reverse mortgages can be very useful and effective. But they are also extremely confusing to the average homeowner and there are many pitfalls (including high upfront costs and complex fees and interest rates) that can create big problems for the unwary. You’ll also want to be sure to consider other options for tapping equity like selling and downsizing or using a home equity line of credit (HELOC). HELOC’s can make more sense than reverse mortgages particularly if you think you might move from the home within five years. We found this useful chart that compare features of home equity loans vs reverse mortgages.
If you’re thinking about a reverse mortgage, we strongly encourage you to talk to a trusted advisor and to seek out unbiased information about reverse mortgages. Much of the information on the web is presented by lenders and brokers and may not tell the full story.
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