In the early 2000s there were all kinds of returns flying into our accounts, there was double and sometimes treble appreciation on our homes.
Some financial experts even recommended borrowing the equity on our homes to invest for a higher rate of return.
They told us to borrow funds at rates of 4-5% and invest in funds that paid 8-10%, this made sense at the time.
Then around 2003 the banking industry came out with a plan to even make more money, it was call the pay-option arm mortgage.
On paper the loan made sense, you would borrow money and have four options on how to pay it back.
Here is how it works; you have for different pay scales, 1.
you could pay the minimum payment which was based on say 1% interest and by the way this is how it was sold.
Four Option payments
Not to mention they were qualified at the 1% rate and not the fully indexed rate of the loan, which meant they could purchase a much higher property that they really could not afford.
On top of that many of the people who received these loans did not make a down payment of any substance.
So now they had a loan where the loan balance was increasing, and they were supposed to invest the difference between the 1% payment and the 30 year fully amortized payment.
Which for many this, would mean investing thousands every month in high yielding investments to off set the interest balance.
Sounded good on paper, but the real problem came in because they never figured on appreciation starting to decline or rates of returns going negative.
So with all this happening they also did not realize that their mortgage balance would grow at and alarming rate and would cap out at 125% and the loan would come due and payable.
The other issue is in many cases the real estate was the investment that they chose to use to make a great return, and they use their primary home to purchase the investment property, which many of them were called second homes or vacation homes.
When these people were taking out these loans, some of the areas that they were buying in were experiencing 20-50% appreciation on and annual basis.
But they never thought it would stop or they thought the buying frenzy would continue for a longtime.
Well the realty of it that, (what goes up must come down) and it did with a vengeance.
In situations like this not only did they risk their credit, but they had risked their primary home as well, this was the worst choice they could have made.
Now here we are they have a second home that has lost in some areas as much as 50% of the value, they have their primary home mortgaged to the hill with a mortgage that has added up to as much as125% of the initial amount borrowed and the value of their home has plummeted to as much as 60% of its original appraised value.
In addition; the money that they were supposed to save was either never invested or the investment has but all disappeared.
Now that the credit market has dried up and credit scores to qualify have gone through the roof to a minimum score of 720 or better they cannot even refinance their home.
They cannot sell it; they are so up side down that they have to walk away.
Air goes the financial crisis at its best! The best part is that the banks and mortgage companies that were the ones who promoted this type of loan and made it easy for just about anyone to get them are the same ones who are going to the people for a bailout.
This is not the best part they are the same banks that kept sending mailers out for zero percent credit cards with huge credit limits, and guaranteed approvals.
Then after that they were sending mailers to refinance and consolidate your debt for a lower payment with the same mortgage as above! They created the beast, they profited from it and now they want the people of this country to feel sorry for them and give them more money to come up with some other way to start this all over again in the future.
So what is the solution to fixing this problem, I say let the banks swim in their own crap and figure a way out on their own, just like many Americans will have to do.
It is either that or take all of the toxic loans that they created and reduce them down to 50% of the current value and let the people refinance them at the reduced amount and start all over again.
In doing this they would wipe out the bad loans, stop the markets from declining because of foreclosures, and stabilize the American homeowner.
Sound good on paper but the banks and mortgage companies still think the answer is just keep printing that money.
They created this problem with greed; with the design of the most toxic mortgage programs in history and the highest profits that banks had ever made in history, so let them use the monies that they made to absorb the pain.
Now for the rest of us who are reaching or have already entered retirement, there is some light at the end of the tunnel.
If you are one of the luck ones who did not take risk in your home, and this is the key.
You still have a way to live at least a little better then if you do nothing; you are able to still tap into the equity in your home.
Only this time without ever worrying about making payments, or declining values, there is some light for you in the tunnel.
This program has been around since the 1980's, but has not been widely promoted until recent years, the program is called the Reverse Mortgage.
Yes many people are still not sure of this loan they still have many short comings or just bad information that has been feed to them through different channels.
The fact is; a Reverse Mortgage is the safest mortgage every created in the market place, with more safety factors then any other mortgage in history.
The mortgage works like this!
Instead of using the proceeds from the sale of you home, use a small portion of it as a down payment and use the RM for the balance, and keep the rest for your retirement.
By using the formula you are using the tax codes at their best.
Remember that any capital gains on your primary home that you live in the 2 out of the last 5 years is tax free up to $500,000 per couple.
So if you have a gain; and you want to buy another home for lets say $300,000 (or even less with all of the bargains out there) don't use the $300k of your money use just a small portion of $40-50k as the down payment and finance the rest with a Reverse Mortgage, this would mean you would have over $450,000 to enjoy tax free for the rest of your life with no mortgage payments.
This is not only tax relief but tax free living.
Wow what a world we live in!
Some financial experts even recommended borrowing the equity on our homes to invest for a higher rate of return.
They told us to borrow funds at rates of 4-5% and invest in funds that paid 8-10%, this made sense at the time.
Then around 2003 the banking industry came out with a plan to even make more money, it was call the pay-option arm mortgage.
On paper the loan made sense, you would borrow money and have four options on how to pay it back.
Here is how it works; you have for different pay scales, 1.
you could pay the minimum payment which was based on say 1% interest and by the way this is how it was sold.
Four Option payments
- 1% interest start rate (Minimum Payment for 1 year or 5 Year.
- Annual rate was 5.
5% interest only payment. - 15 Year amortize payment
- 30 Year amortize payment.
Not to mention they were qualified at the 1% rate and not the fully indexed rate of the loan, which meant they could purchase a much higher property that they really could not afford.
On top of that many of the people who received these loans did not make a down payment of any substance.
So now they had a loan where the loan balance was increasing, and they were supposed to invest the difference between the 1% payment and the 30 year fully amortized payment.
Which for many this, would mean investing thousands every month in high yielding investments to off set the interest balance.
Sounded good on paper, but the real problem came in because they never figured on appreciation starting to decline or rates of returns going negative.
So with all this happening they also did not realize that their mortgage balance would grow at and alarming rate and would cap out at 125% and the loan would come due and payable.
The other issue is in many cases the real estate was the investment that they chose to use to make a great return, and they use their primary home to purchase the investment property, which many of them were called second homes or vacation homes.
When these people were taking out these loans, some of the areas that they were buying in were experiencing 20-50% appreciation on and annual basis.
But they never thought it would stop or they thought the buying frenzy would continue for a longtime.
Well the realty of it that, (what goes up must come down) and it did with a vengeance.
In situations like this not only did they risk their credit, but they had risked their primary home as well, this was the worst choice they could have made.
Now here we are they have a second home that has lost in some areas as much as 50% of the value, they have their primary home mortgaged to the hill with a mortgage that has added up to as much as125% of the initial amount borrowed and the value of their home has plummeted to as much as 60% of its original appraised value.
In addition; the money that they were supposed to save was either never invested or the investment has but all disappeared.
Now that the credit market has dried up and credit scores to qualify have gone through the roof to a minimum score of 720 or better they cannot even refinance their home.
They cannot sell it; they are so up side down that they have to walk away.
Air goes the financial crisis at its best! The best part is that the banks and mortgage companies that were the ones who promoted this type of loan and made it easy for just about anyone to get them are the same ones who are going to the people for a bailout.
This is not the best part they are the same banks that kept sending mailers out for zero percent credit cards with huge credit limits, and guaranteed approvals.
Then after that they were sending mailers to refinance and consolidate your debt for a lower payment with the same mortgage as above! They created the beast, they profited from it and now they want the people of this country to feel sorry for them and give them more money to come up with some other way to start this all over again in the future.
So what is the solution to fixing this problem, I say let the banks swim in their own crap and figure a way out on their own, just like many Americans will have to do.
It is either that or take all of the toxic loans that they created and reduce them down to 50% of the current value and let the people refinance them at the reduced amount and start all over again.
In doing this they would wipe out the bad loans, stop the markets from declining because of foreclosures, and stabilize the American homeowner.
Sound good on paper but the banks and mortgage companies still think the answer is just keep printing that money.
They created this problem with greed; with the design of the most toxic mortgage programs in history and the highest profits that banks had ever made in history, so let them use the monies that they made to absorb the pain.
Now for the rest of us who are reaching or have already entered retirement, there is some light at the end of the tunnel.
If you are one of the luck ones who did not take risk in your home, and this is the key.
You still have a way to live at least a little better then if you do nothing; you are able to still tap into the equity in your home.
Only this time without ever worrying about making payments, or declining values, there is some light for you in the tunnel.
This program has been around since the 1980's, but has not been widely promoted until recent years, the program is called the Reverse Mortgage.
Yes many people are still not sure of this loan they still have many short comings or just bad information that has been feed to them through different channels.
The fact is; a Reverse Mortgage is the safest mortgage every created in the market place, with more safety factors then any other mortgage in history.
The mortgage works like this!
- You must be at least 62 years of age.
- You must have equity in your home
- You must live in the home as your primary residence
- You must maintain the home
- You must pay the taxes and insurances
- You must not have any judgments or tax liens against you or they must be paid off
- You can borrow up to a determined amount based on your age and the appraised value and interest rate at the time.
- You will never have to make another mortgage payment ever as long as you live in the home.
- Your heirs will never be responsible for the balance of the loan over and above the appraised value at the time the home is sold.
- You can use the proceeds in any fashion you so decide.
Instead of using the proceeds from the sale of you home, use a small portion of it as a down payment and use the RM for the balance, and keep the rest for your retirement.
By using the formula you are using the tax codes at their best.
Remember that any capital gains on your primary home that you live in the 2 out of the last 5 years is tax free up to $500,000 per couple.
So if you have a gain; and you want to buy another home for lets say $300,000 (or even less with all of the bargains out there) don't use the $300k of your money use just a small portion of $40-50k as the down payment and finance the rest with a Reverse Mortgage, this would mean you would have over $450,000 to enjoy tax free for the rest of your life with no mortgage payments.
This is not only tax relief but tax free living.
Wow what a world we live in!
Source...