Online Financial Tips

Archive for January 30th, 2012

“At the top of the real estate market, the cap rates of tertiary-market properties were similar to properties in primary and secondary markets.” (CCIM Institute) Coupled with the fact that Balance Sheet Lenders, i.e., institutions that lend per the Balance-Sheet, aka, Portfolio Lenders, are filling the void left by the dearth of solvent secondary Commercial Mortgage Backed Securities (CMBS) markets, it may be time to take another look at investing in smaller commercial property markets, because local lenders know their towns and real estate values are dropping in tertiary markets, too.

Note: “Smaller banks also have higher capital reserve requirements than larger rivals, which left them ‘operating on better capital cushions going into this downturn,’” said Jay Brinkmann, chief economist for the Mortgage Bankers Association (“From Smaller Mortgage Lenders See Opportunity in Turmoil,” Wall Street Journal, Dec. 2, 2008).

As you know, Balance Sheet or Portfolio Lenders are conservative, “old-fashioned” lenders, common both with life insurance businesses and with regional savings and loan institutions, like you find in Bozeman, Montana. With this old “norm” returning, meaning retaining debt on your own books and not repackaging the debt into securities which are then sold off, “a number of the balance-sheet lenders are also using secondary markets as opportunities to stand out and diversify their offerings,” (CCIM Institute) which means it may be the time to consider securing your loan at the local level in not just the secondary markets but also in the tertiary

While some homeowners and retired people see the advantages of getting a reverse mortgage, it is also extremely important to be knowledgeable of this loan programs downfalls. Once you know all of the facts you may find that this type of mortgage is not for you after all. With that said, here is a look at the disadvantages of reverse mortgages.

The process of reverse mortgage is basically paying you for the equity of your home upfront as an immediate lump sum, or as monthly income payments. If you own a reverse mortgage, retirement can be easy for you and your home because it sustains for both of your assets. Life can be a lot easier in your retirement days. However, before jumping into contracts that you only know about the outer shell, it is important to be informed of the disadvantages to know if it really suits you in the long run.

Paying Off Your Home

One of the requirements of a reverse mortgage is that you must pay off the balance of your existing mortgage with the proceeds if you still owe money on your home. While this may not be a big issue for many retirees, it will be if you still have a substantial balance on your mortgage.

Future Debt

One of the bigger disadvantages of this type of loan is when you want to leave your home to your heirs. The debt from the loan is passed on to them in the event you die. In most cases the home will need to be sold in order to pay off the reverse mortgage. Anything that is left over would go to them, but if you are looking to pass your home onto your heirs debt free, then this can be a major disadvantage and something you will really want to consider. Of course, if you have no immediate family then this is a moot point.

Despite its advantages, it is important to understand the disadvantages of a reverse mortgage so that you can make a more informed decision on whether this loan is right for you. These are only two of the major issues and you should further check into them before deciding whether to proceed further. Don’t get me wrong, this loan is very beneficial in the right circumstances. You just need to do your homework to know if you fit the criteria.