You want to retire but your high mortgage payment making it impossible? The Tampa Tribune offers up some great advice on how to retire with a mortgage. (more…)

If you have a Florida reverse mortgage, you know that the interest is added to the loan balance each year but is not paid until the home loan is paid off, usually at maturity or when the home is sold. (more…)

Jobless subprime home loan specialists are looking for employment in the booming market for reverse Florida mortgage loans to senior citizens, mortgage market executives said on Tuesday. (more…)

Reverse mortgages, which pay money to home owners based on the values of their homes, seem like a good answer for those wishing to tap into their home’s equity. These loans, however, can come with significant drawbacks.

Now, there’s a new twist from Circle Lending - one where the lenders are family or friends.

After all, reverse Florida home loans are growing in popularity. According to the Federal Housing Authority, they tallied just 6,640 natioanlly in 2000 - but rose to 74,412 in 2006.

In conventional, federally insured reverse mortgages, owners receive either lump-sum payments or monthly checks from lenders. Repayment of the money borrowed, plus interest, is delayed until the owner dies or sells the house.

People like reverse mortgages because they can stay in their homes as long as they are able. But the loans have several drawbacks and limitations:

- They can be quite costly. There are origination fees and normal closing costs. There’s also, usually, a 2 percent insurance premium. That’s to guarantee the lender that it won’t lose money on the deal. All told, the expenses add up quickly, typically to between $8,000 and $20,000.

- Borrowers must be at least 62 years old.

- The loans can only be made on a primary residence, not on vacation or investment properties.

- Lenders don’t normally loan much more than half of the house’s equity.

- Borrowers must meet with a counselor approved by the Housing and Urban Development agency to make sure they understand the transaction.

New kind of Florida mortgage

Circle Lending calls its version of reverse mortgage Family Advantage and describes it “as a line of credit funded by the relatives or friends of a homeowner and secured by real estate.”

The arrangement retains the advantages of conventional reverse mortgages and eliminates many of their costs, restrictions and drawbacks. Using Family Advantage, homeowners pay just $3,999, a big savings compared with conventional reverse mortgages.

With a convential Florida mortgage loan, a 72-year-old homeowner living in a metropolitan area in a house valued at $560,000 would be able to receive up to $226,000. The fees would come to $7,230 for the origination fee, $7,230 for the insurance, $4,000 in closing costs and $30 a month for servicing. That’s a total of $18,460.

With Family Advantage, the homeowner could get as much as the entire $560,000 if the lender agrees. It would cost just the flat fee of $3,999, plus a charge of $19 for each disbursement made, which could be a one-time payment or done monthly, quarterly or annually.

Under Family Advantage, there are also no age restrictions and can be made on second homes. Basically, instead of selling the house to the bank, little by little, the owner is selling it to a friend or relative.

“[It] enables the homeowner to receive cash knowing that a relative or friend - not an institution - is building equity in the house,” says Asheesh Advani, CEO of Circle Lending.

With Family Advantage, the company provides all the documentation needed, performs a title search, administers the loan and keeps complete records of the loan. But one of the biggest advantages to going through Circle Lending to arrange this type of transaction, is that it provides a legal framework for the participants.

Keith Gumbinger of HSH Associates, which publishes information about Florida mortgages and other financial matters, says arranging a family loan through a company like Circle Lending can be beneficial for both parties.

“Formalizing the agreement provides a clear outline of the responsibilities of both the lender and the borrower,” he says.

Mostly reserved for retirees, a reverse mortgage is a popular financial resource. But is it right for you?

“When we try to plan for the future, there are so many unknowns,” said Jim Mahoney, chief executive officer for Financial Freedom Senior Funding Corp. “The equity in the house is a nice cushion. That’s the main reason why we like to look at [a reverse mortgage] as a last resort.”

Moreover, many consumers considering a reverse Florida mortgage decide against it because they want to leave their house - or the equity built up in it - to their heirs.

No matter where you fall, here are questions to ask yourself on the topic:

1. Is downsizing a better option? As part of their due diligence, homeowners should seriously look at selling and moving as a way to tap home’s equity, said Ken Scholen, director of the AARP Foundation’s Reverse Mortgage Education Project.

Those who do will sometimes realize they could get more for their home than they thought or that another living situation is more attractive. Or maybe their best option is to stay in the current home.

2. How long do you plan to stay in the house? A reverse mortgage doesn’t make sense, for example, for someone planning on moving two years in the future.

3. What are your financial needs and how would a reverse mortgage help you? If the mortgage is being considered to supplement a rainy day fund, it might be best to consider a line of credit that can be tapped when it is needed. If money is needed for a shorter period of time, maybe a Florida home equity loan is a better choice, Scholen said.

4. When do you need the loan? In addition to waiting for less expensive products in the pipeline, remember that homeowners are eligible for more money the older they are and the more their house is worth. This may cause you to wait to apply for any new Florida home loans.

The Sunshine State is home to many retirees. That’s why the following question and answer (paraphrased below) asked of Bankrate.com’s Don Taylor, could be relevant to many readers:

Question: I am checking out whether to refinance or take a reverse mortgage. I will be 79 in January and live on my Social Security income. If I take the reverse mortgage it will cost me over $10,000 in closing costs plus the payoff balance on my existing mortgage, which is about $22,100. Which way do you thing would be best for me?

Answer: You might have a problem qualifying to refinance your mortgage based on your income. Beyond having good credit, the lender needs to see an income stream large enough to cover the payments on the Florida mortgage loan.

A reverse mortgage gets past that issue because there are no contractual payments on it. The interest expense on the money borrowed goes against the equity you have in your home. For that reason, you also don’t get to borrow as much because the Florida home loan lender needs to allocate a portion of your home’s equity to estimated interest expense.

As you found out, closing costs on a reverse mortgage are very expensive when compared to closing costs on a traditional first mortgage loan. One way to try to hold these costs down is to shop the three main reverse mortgage loan programs and compare costs. If you do this in a concentrated time period of a few weeks, it won’t negatively impact your credit score because it’s obvious that you’re doing a little comparison shopping.

Also: You can do some clever things with a home equity line of credit, but face qualifying on the basis of your income for that type of loan, too.

From what you’ve told me, and you didn’t tell me how much equity you have in your home, I think a reverse mortgage makes more sense for you than Florida mortgage refinancing or a HELOC - but I’ll borrow a line from my earlier column and tell you that my best advice is that you don’t look at this loan in isolation from your household budget, any other investments and your expected financial needs.

A reverse Florida home mortgage is a great resource. One of the chief knocks against such a loan, however, is that the most popular program does not go far enough in extending seniors the funds they need.

The Home Equity Conversion Mortgage (HECM) is insured by the Federal Housing Administration, a part of the U.S. Department of Housing and Urban Development, and makes up more than 80 percent of all the reverse mortgages written in the country. The maximum loan limit is pinned to the homeowner’s age, home value and home location. The location dictates the maximum claim amount, which varies by county. These amounts can range from $200,160 in rural areas to $335,800 in urban areas.

Last month, the U.S. House of Representatives took a giant step towards eliminating the geographical barrier by passing the Expanding American Homeownership Act of 2006 (H.R. 5121), which would create a single national loan limit for the HECM program, equal to the conforming Freddie Mac loan limit of $417,000 for 2006.

Inside the reverse Florida mortgage loan world

A reverse Florida mortgage loan does not have to be repaid until the borrower moves out of the home permanently - and the repayment amount cannot exceed the value of the home. After the loan is repaid, any remaining equity is distributed to the borrower or the borrower’s estate. A senior’s home does not have to be owned free and clear to qualify for a reverse mortgage. As a result, reverse mortgages are often used to retire existing debt on a home.

There used to be a problem, however: early reverse-mortgage programs got a poor reputation because some were flawed and contained huge appreciation shares for the lender, coupled with big-time upfront fees. Now, with the federal government insuring a majority of the reverse mortgages with no lender equity shares, the concept has become more acceptable and recognized by consumers.

Raising the local loan ceilings for senior borrowers is a great idea; especially in the case of Florida home loans of this nature because the Sunshine State is home to many retirees. Two privately funded national studies showed participants were frustrated with the inability to fully tap their large and growing equity. Respondents noted their increasing property values and living expenses, as well as their difficulty in making ends meet with the current HECM loan limits.

The Expanding American Homeownership Act, which passed 415-7, would make other substantial improvements to the FHA/HECM program. The new legislation calls for a “home purchase” option that would allow people to use a reverse mortgage to purchase newer housing that better suits their needs; along with removing the volume cap on the number of HECM loans that FHA can insure.

Rep. Jay Inslee, D-Wash., who co-sponsored the elimination of the loan cap, said a single national limit would put more cash in the hands of more seniors who need it.

“We’ve found that our country’s seniors really need help with health care and assisted living,” Inslee said. “They are equity-rich but cash-poor in a lot of circumstances. By freeing up more potential cash from their home, many more of our seniors can live more comfortably.”

Another part of the bill would require HUD to study the Florida home mortgage insurance premiums charged on a HECM loan. This bill gives the FHA the authority to charge fees based on the borrower’s risk of default. Currently, the FHA charges all borrowers the same 1.5 percent upfront fee and 0.5 percent annual fee for mortgage insurance, regardless of the borrower’s risk of default.

The aim is to help the older generation. As more Baby Boomers retire and look into Florida mortgage loans, this is even more pressing of an issue.

Are you thinking about a reverse mortgage? If you’re over 62 years old, such resources can act like a Florida home equity loan, saving you time and money as you remain in your current residence.

But what if you wish to move? Especially for retirees, can a reverse Florida mortgage loan actually be used for a purchase, enabling the owner to not have to make any monthly mortgage payments.

The answer, courtesy of financial expert Bob Bruss, is yes: a “reverse mortgage for home purchase” is available from Fannie Mae. The two other major reverse mortgage lenders, FHA and Financial Freedom Plan, do not offer these special reverse Florida mortgage loans. They simply focus on the first kind, using such a loan to help those NOT planning to move.

A reverse mortgage for home purchase usually requires a large, cash down payment, typically around 50 percent of the purchase price. The balance is then funded from a reverse mortgage.

Such a reverse mortgage is ideal for the purchase of a retirement home where you obtain the down payment cash from the sale of your former residence. Be careful, however. Florida home loans of this nature can go wrong and you need to be aware of the dangers.

If you want to understand just how dramatically a seemingly good Florida home loan idea can go awry, consider the saga detailed Sunday by real estate expert and syndicated columnist Kenneth Harney of the Washington Post Writers Group.

Katherine Stephens, a 94-year-old widow, lives in a New Jersey nursing home, and has $38 in her bank account, according to her nephew, William Finch. Monthly Social Security checks pay only a small portion of her nursing home bills.

In 1988, Stephens and her husband, Harold, signed up for what they thought was a great concept for senior citizens: A reverse mortgage. Until their death, or they moved out of their house in Brigantine, N.J., the loan would pay them $312 a month in perpetuity. It sounded great, as it often does for citizens looking for alternate ways of retirement financing.

Buried in the home loan agreement, however, was something called additional interest — a provision giving the lender the right to 100 percent of all gains in the property’s market value. At the time the loan was issued to the couple, the appraised value of the Stephens’ house was $83,500. Two recent appraisals put the current value at roughly $500,000.

From 1988 through January 2006, Mrs. Stephens received $67,586.01 in total monthly payments: first from the original reverse mortgage lender (the now-defunct American Homestead Mortgage) and later from Wilmington Savings Fund Society, a Delaware bank that purchased American Homestead’s portfolio of reverse mortgages in 1994.

Here’s where it gets bad. Wilmington Savings, a $2.2 billion federally regulated bank, is now demanding that Mrs. Stephens pay:

• The $67,586.01 advanced in monthly payouts.
• $158,218.19 in compounded interest at a 11.5 percent rate.
• The 100 percent of the house appreciation since 1988 to which it is entitled as additional interest under the original loan contract.

That amounts to $416,500, but the contract puts a cap on payouts to the lender at 100 percent of the current appraised value of the house, i.e. $500,000, minus selling expenses. Wilmington Bank is adamant that it receives full payment in spite of the fact that the debtor is a penniless 94-year-old widow who simply wants to pay her nursing home bills.

A Wilmington Savings spokeswoman said the bank’s reverse mortgage loans comply fully with federal and state laws, and that all of the terms and conditions of those home loans were fully disclosed to borrowers. Unless there are extraordinary circumstances, Wilmington Savings will collect all amounts due to the lender under the contractual terms of the loan.

Finch has listed the house for sale, and virtually all of the proceeds appear to be headed straight into the coffers of a $2.2 billion bank. Not a penny to a 94-year old who merely wants to pay her nursing home bills. All things are not as they seem. Before you sign up for a reverse Florida home loan, or any other unorthodox option, be sure you understand every document you’re putting your signature on.

Florida is the number-one destination for those looking to retire. As a result, a handful Florida home loans are tailored to this community. For example, there are many reasons to consider a reverse mortgage if you’re over the age of 65 and not thinking about moving any time soon.

But what if baby boomers are thinking of buying or selling? With this in mind, ERA Real Estate has announced the results of its annual survey of mature consumers regarding their opinions toward real estate and the home buying and selling process.

The national telephone survey of more than 1,000 men and women aged 50 years and older determined that the majority of respondents (64 percent) clearly identify the single-family home as their preferred residence of choice.

Survey results: A single-family Florida home loan or a condo?

The survey found that 21 percent of 50-plus consumers were considering a move in the next five years. Of those who plan to move, a majority (63 percent) are looking to purchase a single-family home, while 18 percent would purchase a condo or townhouse and only a scant 2 percent would choose an adult community.

More than half of those surveyed (55 percent) cited retirement as one of the reasons for buying a new home. Other motivating factors identified included:

• A desire to downsize
• Lower taxes
• Proximity to friends and family
• A change of climate and affordability.

The mature consumer continues to be an extremely influential group with very specific wants and needs,” says Brenda W. Casserly, president and COO, ERA Franchise Systems, Inc. “We are continually working to deliver targeted services and resources that are tailored to the specific needs of 50-plus home buyers and sellers. It’s part of our effort to be the real estate company of choice among active adults.”

Choosing their Florida home loan

When it comes to searching for a house, one out of four (27 percent) said their first step would be to search the Internet if they were thinking of moving or buying a home in the next five years. However, this search method was more prevalent for those under the age of 65 (33 percent) than those age 65 or older (12 percent).

Talking to a real estate agent or broker that they know was the preferred first step for 18 percent of those polled, while 14 percent would choose to talk to a friend, family member or business associate.

As previously reported, this older, active adult segment of the population is often targeted by Florida home loan companies. It’s a sought after demographic.