The Finatical
Week of July 19th, 2022 - Reverse Mortgages, Mortgage Demand Rises, China’s Concern With Tech Companies Withdrawal From Russia
Topic Breakdown - Learn about Reverse Mortgages
Introduction
You may already know that mortgages allow homeowners to borrow money with their home being the security for the loan, but have you ever heard of reverse mortgages? A reverse mortgage is a type of loan that lets homeowners ages 62 and up borrow part of their home’s equity as tax-free income. Whereas homeowners pay the lender in a standard mortgage, the lender pays the homeowner in a reverse mortgage. Homeowners who choose this type of mortgage don’t have to pay monthly payments but have to repay the loan when the borrower permanently sells or moves out of the house, or passes away.
How it Works
So how exactly does a reverse mortgage work? According to consumer.ftc.gov, “there are three kinds of reverse mortgages: single purpose reverse mortgages – offered by some state and local government agencies, as well as non-profits; proprietary reverse mortgages – private loans; and federally-insured reverse mortgages, also known as Home Equity Conversion Mortgages (HECMs).” In a reverse mortgage, you retain ownership of your home. Instead of making monthly mortgage payments, you receive a cash advance on a portion of your home equity. The money you get is usually not taxed, and it has no effect on your Social Security or healthcare benefits. The loan must be repaid when the last living borrower dies, sells the home, or no longer lives in the home as a primary residence. In some cases, a non-borrowing spouse may be permitted to stay in the house. There are also some requirements to qualify for a reverse mortgage. The first requirement to be eligible for a reverse mortgage is that the homeowner must be 62 years old or older. Otherwise, if a spouse is under 62 years old, you may still be eligible for a reverse mortgage if you meet the conditions listed here: You must live in the house as your primary residence. Any other mortgage must be paid off with the proceeds from your reverse mortgage. Must be current on property taxes and other legal obligations. Your home must be a single-family, built after June 1976, and a property of up to four units.
Pros and Cons
It’s up to you to decide if a reverse mortgage is right for you; here are some pros and cons that may help with your decision once you are eligible for a reverse mortgage. Pros: Borrowers don’t need to make monthly payments. Funds assist borrowers’ retirement. Borrowers can use a reverse mortgage to pay off an existing mortgage. Cons: Fees and other costs can be high, lowering your cash amount. Forces you to borrow against the equity in your home, which instead could be used as a source of retirement funds. Remember, reverse mortgages are not for everyone. Some people may just benefit from a regular one!
Financial Trends
Mortgage Demand Rises
Mortgage rates are still continuing to drop for the second week in a row, however, it didn’t seem to receive the demand from homeowners or potential buyers that banks were expecting. The rates had fallen by 10 basis points and have overall dropped by 24 basis points which is the equivalent of the total mortgage demand dropping by 5.4%. According to MBA’s vice associate vice president of economic and industry forecasting, Joel Kan, “Mortgage rates decreased for the second week in a row, as growing concerns over an economic slowdown and increased recessionary risks kept Treasury yields lower.” These concerns have been prominent with applications for refinancing home loans, as they dropped 8% for the week and were down 78% from the same week one year ago. Additionally, the refinance shares of mortgage activities have dropped to 29.6% from 30.3%, just this past week.
Another reason why the demand for mortgages is decreasing is that they are still significantly higher compared to what they were just last year. As a result, the applications for home purchases and refinances remain depressed leading to the number of home purchases being very low due to the high purchasing prices and low inventory. However, there is still hope for mortgages to become popular once again as the inventory of houses has started to grow but in order for there to be substantial economic relief, the selling prices of homes need to decrease.
China’s Concern With Tech Companies Withdrawal From Russia
Russia’s decision to invade Ukraine led to a lot of economic tensions around the world, including in the technology sector. China is one of the main countries that is struggling with these economic tensions and their consumers have criticized Apple, Google and Microsoft, and many other tech companies that have cut ties with their business in the different regions of Russia. These companies have stopped all of their product sales and exports, by removing Apple Pay and the Russian state news outlets from the Apple stores that are located outside of Russia. There has been tension between China and Taiwan amidst the Ukraine and Russian War, where Beijing is claiming the self-governed island as its territory. Financial experts have stated that it would be difficult for Apple to walk away from China if they decide to declare war upon Taiwan because the nation is the critical manufacturer for the company, while also being the third largest market for its products.
The regulations that are established in China require Apple and other tech companies to store their Chinese customers' information on servers that are inside the country. There are already conflicts between the Chinese administration and the U.S. regarding tech companies, as the U.S. enforced restrictions on Chinese tech companies like Huawei and ZTE because they view them as threats to national security. Russia’s ongoing isolation from tech companies like Apple has fueled China’s necessity for tech independence from the Western nations, also called the “great decoupling”.
Financial Guidance
“Financial freedom is freedom from fear.”
Money is one of the biggest parts of our lives, and any decision that involves it is likely to evoke fear and uncertainty within you. However, having financial freedom means that you will be able to alleviate those fears and take action.
Money Fact
Many places have unique names for money. For example, in Australia, they call their $20 note a “red lobster”, or “toads” in Denmark.