Forward and Reverse Mortgages: When To Take Them Out and When to Pay Them Off
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 14 July 2021
⏱️ 33 minutes
🧾️ Download transcript
Summary
How to decide when to take out a home mortgage and whether to pay it off early. How reverse mortgages can be a helpful retirement tool.
Topics covered include:
- Why it is more difficult to get a mortgage today
- How federal government mortgage guarantees lead to lower mortgage rates
- How to analyze whether to pay off your mortgage early
- The differences between personal risk, market risk, and aspirational risk
- How reverse mortgages work and how they can be useful as a retirement income tool
- What are the costs of reverse mortgages
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Show Notes
Quarterly Report on Household Debt and Credit 2021 Q1—Federal Reserve Bank of New York
Selling Guide: Lender Letter LL-2021-03, Impact of COVID-19 on Originations (03/11/2021)—Fannie Mae0
Mortgage Debt and Asset Allocation, Video by Ben Felix
Plus Episode 329: Robinhood, Mortgages and ETF Transparency—Money For The Rest of Us
How the HECM Program Works—U.S. Department of Housing and Urban Development
Incorporating Home Equity into a Retirement Income Strategy by Wade D. Pfau
Related Episodes
44: Should You Pay Off Your Mortgage?
238: The U.S. Is More Socialist Than Denmark Regarding Home Mortgages
317: How To Buy In A Hot Housing Market
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Transcript
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| 0:00.0 | Welcome to Money for the Rest of Us. This is a personal financial on money, how it works, |
| 0:06.1 | how to invest it, and how to live without worrying about it. I'm your host David Stein |
| 0:11.2 | today is episode 349. It's titled, Forward and Reverse Mortgage is, When to Take Them Out |
| 0:19.4 | and When to Pay Them Off. A Home Mortgage is debt secured by a house. I had never |
| 0:27.7 | heard of the term forward mortgage. We typically just think of a mortgage. I have heard of a reverse |
| 0:35.0 | mortgage. The difference between a forward mortgage and a reverse mortgage is with a forward |
| 0:42.3 | home mortgage you have to make monthly payments of at least interest, but typically interest |
| 0:47.0 | and principle. Whereas a reverse mortgage is a way to tap into the equity of your house, |
| 0:52.4 | you can receive a lump sum or a series of monthly payments, but you're not making payments |
| 0:58.6 | to the bank or the holder of the mortgage until the house is sold or you pass away. |
| 1:04.9 | We're going to take a look at both types of mortgages in today's episode. The word mortgage is |
| 1:12.1 | old French and literally means death pledge, which is kind of an ominous sounding word, but there |
| 1:20.3 | have been a lot of mortgages taken out over the past year. In the US, typically there's about 400 |
| 1:28.4 | billion to 600 billion new home mortgages originated each quarter. That was from 2007 to 2020, |
| 1:38.0 | but in 2020 and into 2021 things changed. The last three quarters has seen new mortgage |
| 1:46.1 | originations. These are forward mortgages of over a trillion dollars. Over 700 billion |
| 1:52.8 | of those quarterly mortgages were granted or taken out by individuals with credit scores over |
| 1:58.9 | 760. So most of the growth has come from households with very good credit. Interestingly, about 400 |
| 2:07.3 | billion of new mortgage originations were individuals over the age of 50 and about 200 billion were |
| 2:14.5 | over 60. Individuals approaching retirement or in retirement are still taking out mortgages |
| 2:21.9 | rather than fund the home purchase from their existing assets. That's one of the things that we'll |
| 2:27.1 | look at. Should we take out a mortgage or should we just fund it out of cash? Over a decade ago, |
... |
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