Breaking down Proposition 5
POSTED: Sunday, November 3, 2013 - 10:09pm
UPDATED: Sunday, November 3, 2013 - 10:22pm
El Paso, TX (KTSM) — The Lone Star state is the second largest housing market for reverse mortgages but it's is the only state that outlaws reverse mortgage for purchase. One proposition on the ballot for the general election could change that.
Reverse mortgage for payment could be an important option for seniors here in El Paso because of our growing and aging baby boomer population. But there are some risks.
Proposition 5 may hit close to home for El Pasoans. It's an item aimed at legalizing reverse mortgage for purchase, for those who are 62 years and older.
"Can help save their home, number 1. A lot of times in El Paso and other areas, it's very common the family members are helping the parents at this point,” Michele Tsoukalas, a Mortgage Banker with Castle & Cooke Mortgage. Tsoukalas is also co-owner of MALZ Financial Planning and is one of the few people in El Paso who are experts on reverse mortgages. "In the event that the mortgage is paid off then they are able to use the equity however they choose fit."
With this kind of loan -- a consumer can buy a new home and get a reverse mortgage -- all at the same time. "Or just live off of that money, they can go into different lump sums, or they can have a lifetime payout."
With a reverse mortgage for purchase -- they will not have to pay a mortgage payment. "So what this does is it helps eliminate their mortgage debt based on the age of the person,” Tsoukalas explained.
But there will be some expenses. "They do have to keep up with property insurance and then there's mortgage insurance protection that's involved in there for the loan."
And, there are risks -- these types of loans have been popular with scammers. "I caution, you know, people tremendously. With working with people from out of town, that's basically why I decided to go ahead and get licensed myself,” Tsoukalas said. "You do have to have an NMLS license through the national and states you function in."
And opponents of the prop also argue the risk of losing your home equity due to fraud increases if there is weak state enforcement. If the prop goes through and you qualify for a reverse mortgage for payment it is backed by the Federal Housing Administration and the US Department of Housing and Urban Development.