Tim Holdmann and David Wickert return to speculate on the 2020 housing market, explain reverse mortgages (and how they’re not always a good idea), and more on this week’s episode of the Accunet Mortgage and Realty Show.
This week’s highlights:
- Thinking of collateralizing your home on a business loan? Before you do, read up on how business loans can get in the way of a home refinance.
- Fannie Mae released their housing forecast predicting what the housing world will look like over the next year and a half.
- A reverse mortgage might look nice on the outside, but trust us — you can get a better deal.
Fannie Mae’s housing forecast (November 2019)
Fannie Mae’s economic outlook, released on a monthly basis, predicts what will happen in the housing world over the next 18 months. This month’s predictions were released recently, and needless to say, they’re pretty interesting:
- Prediction #1: Interest rates will remain favorable for most of 2020.
- Prediction #2: The 30-year fixed-rate will hover around 3.6%.
Now, it’s important to remember that these prediction are just that — predictions. There’s no guarantee of accuracy, so take them with a grain (or two) of salt.
- October 2018 prediction: Rates will be at 4.8% in 2019
- November 2018 prediction: Rates will be at 5% in 2019.
We’re sitting at a cozy 3.99% — hardly in line with what Fannie Mae predicted. Still, the predictions give us a pretty good idea of where we stand economically, and where the top minds in the country think we’re heading.
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Client story: How a business loan can get in the way of a refinance
When we’re putting together a home refinance, it’s standard procedure to check if there are any loans or liens on a home we’d like to collateralize. And this week, we did just that — and found something we weren’t expecting.
We got the title report back, and saw the following:
- Their original first mortgage (expected).
- Their second mortgage (expected).
- A multi-million dollar business loan from 2012 (completely unexpected).
Why is this such a problem? Well, the new mortgage and business loan sum up to more than the value of the house — not exactly what lenders like to see. No lender wants to lend money greater than the collateral. We asked the borrower for some more information, and it turns out they’ve paid down the loan by around 70% (still a sizable 6-figure loan).
For this to work with their refinance, they now need to get permission from the business loan folks to get a new loan before they completely pay off the business loan. Right now, the immediate path forward is to ask (or beg) the bank to release the home as collateral; We’ll update you as the story develops.
What is a reverse mortgage?
Every now and then, a borrower will reach out to us asking about reverse mortgages. And, while we’re happy to help, reverse mortgages are typically not a great idea in the long-run.
Reverse mortgage = AKA a home equity conversion mortgage. This loan is held under the auspices of the federal government and allows those of a certain age (or older) to convert the equity in their home into payments to themselves. Basically, you get the equity in your home without having to sell it.
What is the downside to a reverse mortgage?
Well, there are a lot of downsides. To put it simply, it’s just not a good deal — You end up paying more interest, and you burn the equity in your home. Your loan balance ends up increasing over time, and all of the interest goes toward the government. Not exactly an ideal mortgage.[elementor-template id=”10109″]
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