Many recent college graduates choose to rent expensive, upscale apartments rather than putting money into savings. Their “fear of missing out” (FOMO) on being “close to the action” or luxury-living amenities comes at a cost, with high demand for these units resulting in spiraling monthly rents. To cover these higher costs, “apartment loans” are now available in several urban areas.
Similar to the high-risk mortgages that triggered the financial crisis in 2008, apartment loans may be viewed as predatory lending. Renters may borrow up to $15,000 with no interest for the first six months, but then encounter an annual interest rate of 15-17 percent. Some justify these loans in that the costs are lower than payday lending.
If you have to take out a loan to pay the rent for an apartment…you CAN’T afford to live there. Your ability to build wealth and long-term financial security will depend on living within your income.
For additional information on apartment loans, click here.
- Have students conduct a survey of renters to determine actions they took to determine the location and cost of obtaining an apartment.
- Have students create a visual presentation with the dangers of apartment loans.
- What actions might be considered to avoid apartment loans?
- Describe financial and personal concerns associated with apartment loans.
While you might think that saving for college, retirement, or buying home are the reasons Americans save, according to a recent survey, travel was reported as the top priority. In a study of 2,500 adult Americans representing varied demographic, geographic, economic, and social groups, 45 percent of respondents set aside money for traveling. This was especially true among younger respondents, who prefer travel experiences over savings to buy a home.
After travel, the main priorities for saving by Americans are:
- for an emergency fund (37 percent)
- for retirement (30 percent)
- to buy a house (21 percent)
- to buy a car, truck or motorcycle (20 percent)
For additional information on saving priorities, check out these two resources:
- Have students conduct a survey among people they know to determine the main reasons for saving.
- Have students talk to others to obtain ideas for building a person’s savings account.
- What do you believe are reasons people prefer saving for travel over other financial goals?
- Describe other actions that might be taken to motivate people to build their savings?
The most popular reverse mortgage program is the Home Equity Conversion Mortgage (HECM), which is insured by Housing and Urban Development (HUD).
New rules from HUD add protections for certain surviving spouses after the death of a reverse mortgage borrower. Until recently, if the non-borrower spouse was not on the loan, he or she was not entitled to remain in the property following the death of the borrower. But under HUD’s new rules, non-borrowing, surviving spouse can remain in the home if specific conditions are met. These changes apply to reverse mortgage loans in which the borrowing spouse applied for a reverse mortgage before August 2014. In addition, the couple must have resided in the property as their principal residence throughout the duration of the HECM, and taxes, property insurance and any other special assessments that may be required by local or state law must have been paid.
The concern regarding non-borrowing spouses has been a source of many reverse mortgage issues. Here’s why: The amount of money a reverse mortgage borrower can draw is based in part on the age of the youngest borrower—and unless all borrowers are 62 or over, they would not qualify for a reverse mortgage.
For more information:
Reverse Mortgage Information
- Ask students to comment on the statement: “While a reverse mortgage can be used to supplement monthly income, some borrowers may face unintended obstacles and consequences”. What might be those consequences?
- Are the new rules from HUD effective in protecting senior citizens? Why or why not?
- Why should you talk to a qualified professional before deciding to get a reverse mortgage?
- Where can you find HUD-approved HECM Counseling Agencies near you?
Reverse mortgages are a special type of loan that allows homeowners, 62 and older, to borrow against the accrued equity in their homes. Reverse mortgages can help some older homeowners meet financial needs, but they can jeopardize retirement security if not used carefully.
In February 2015, the Consumer Financial Protection Bureau (CFPB) released a report that some homeowners have experienced problems with reverse mortgages. The most common reverse mortgage complaint is about difficulty with changing the loan terms and problems communicating with loan servicers. Some consumers, for example, express frustration about slow, inconsistent communication from their reverse mortgage loan servicer.
If you are having a problem with your reverse mortgage or having problems getting through to your mortgage servicer, you can submit a complaint to CFPB online or by calling (855) 411-2372 or TTY/TDD (855) 729-2372. The CFPB will forward your complaint to the company and work to get you a response within 15 days.
For additional information, click here.
- How can a person access funds from a reverse mortgage?
- Ask students what other alternatives might be available before settling for a reverse mortgage?
- What is the purpose of a reverse mortgage?
- Can people with very low equity in their home qualify for a reverse mortgage?
- How can people protect themselves from dishonest reverse mortgage providers that charge exorbitant fees?
Cheap mortgage rates are a bonanza for home buyers.
Currently, home mortgage rates are trending lower which is good news for home buyers. According to a recent Freddie Mac survey, the 30-year fixed rate is 4.28 percent. The 15-year fixed rate is 3.32 percent.
So how important is a lower home mortgage rate for a home buyer?
- At a rate of 6 percent, the monthly mortgage payment for a $200,000 thirty-year mortgage is $1,000 a month ($200,000 x 6% ÷ 12 = $1,000).
- If the rate drops to 4.28 percent, the monthly payment drops to $713 a month ($200,000 x 4.28% ÷ 12 = $713).
- That’s a difference of $287 each and every month.
- Assuming the home buyer makes monthly payments for the entire 30-year period, that’s a savings of $103,320 ($287 x 12 x 30 = $103,320).
For additional information about mortgage rates and the factors that cause rates to increase or decrease go to http://money.cnn.com/2014/03/06/real_estate/mortgage-rates/index.html.
1. What are the common mistakes people make when they finance a home?
2. Why would you consider a 15-year mortgage instead of a 30-year mortgage?
3. Why would you consider a 30-year mortgage instead of a 15-year mortgage?
You may want to use the information in this blog post and the original article to discuss
- Why a home buyer should compare mortgage rates when financing a home purchase.
- The advantages and disadvantages of a 30-year and a 15-year home mortgage.