When is comes to doing a mortgage, it is usually is best to go with a Fixed interest rate, especially when you’re making mortgage payments. Right? But how does that come into play if it’s a Reverse loan?
It doesn’t matter unless the borrower wants to pass on a very large loan balance on to their heirs. Yeah, “fixed’ sounds really good, doesn’t it? You always know what the interest rate will be but the downside is, that on a Reverse loan that has a fixed rate, you can’t get a line of credit.
The entire amount of money that the senior will receive through their “fixed’ Reverse loan, has to be taken in in one big, large, huge amount of money. And it will immediately start to accrue interest at around 6.5% (the last time that I looked). And we are talking about compounding interest!
Many lenders and brokers are sending letters to seniors about getting a fixed rate, a “dangling carrot” so to speak. And they say what a great loan this would be for them and that they will always know what the interest rate will be, blah,blah,blah…..
Big deal! Who cares? It’s an illusion and not a really brilliant choice for a senior to use. Oh, yeah, I shouldn’t forget that they could take this money and invest it somewhere for a return. Just kidding! Now tell me, what kind of an investment would offset the interest that is being charged on the Reverse loan?
I don’t know of any.
One of my clients recently sent me two letters that she had received, touting the benefits of having a fixed interest rate on her Reverse loan. Her hand written comments were hilarious! And of course, these letters implied a sense of urgency, that she may miss out on getting a fixed rate if she didn’t call right away.
A fixed rate for a Reverse loan is a terrible choice. At the end of the loan, the balance could be huge. With the more traditional and safer HECM ( even though it’s adjustable), it’s the saner and safer choice.
The borrower is only charged interest on what they use and overall, the loan balance would be significantly smaller than if they used a fixed rate.
Until there’s an option to have a line of credit on a fixed rate Reverse mortgage, use the adjustable. In the end it will cost the borrowers and their heirs a lot less money.
Here is the conclusion of Corrine’s article on Long Term Care Insurance. I have found that when I’m helping Seniors with their Reverse Mortgage, very few of them planned on needing assistance when they were older. And even if they wish to purchase the insurance, they won’t be able to qualify due to health issues.
No one ever plans on “getting old”. But you will and there’s no escaping it. Plan for the future. Not only for yourself but your family as well.
I bought my own policy a couple of years ago and believe me, I’m really glad that I have it. I’ve seen what happens to people when they grow old, helpless and don’t have any money. Medicaid or MediCal are not something you want to rely on and don’t even THINK that Medicare will pick up your expenses.
The product is not suitable for everyone. If you have to make substantial changes in your lifestyle to pay your premiums, it isn’t for you. Like any insurance product, it is for those who have something to protect and something to lose. The product is suitable for anyone who wants to avoid an unintended invasion of their portfolio and those who want to maintain their independence, their choices and help their kids fulfill their promise that they’ll never put you in a nursing home.
This isn’t a do-it-yourself product. Meet with an agent specializing in long-term care insurance so they can pick the most appropriate plan at an affordable premium.
Written by Corinne Berenson, LTC Specialist
According to results of Genworth Financial’s “2007 Cost of Care Survey,” the average national cost of care in nursing homes, assisted-living facilities and home-based care has increased 15 percent since 2004. The survey said the average daily rate of private nursing home care is $204. The cost of assisted living can be close to the same, and even a home healthcare provider averages $19 an hour. As the costs grow an average of 5 percent a year, will you be able to shoulder these expenses on your own?
Although the majority of people who require long-term care are over the age of 65, 40 percent are between the ages of 18-64, so don’t think that you’re “too young” to be in care. When considering the purchase of long-term care insurance, understand that you will need to meet medical qualifications, and even a bad diagnoses can make coverage unavailable. Although once you’ve been approved for a policy, it is “guaranteed renewable,” and no changes in your health can affect your coverage. Waiting too long may mean losing your “insurability” due to pre-existing health conditions. Because the premiums are based on your current age, waiting may also mean paying higher premiums. Other factors in determining premiums are health, marital status and the amount of coverage you purchase.
I’m sitting here, thinking about the new lending limit of $417,000 that HUD has decided to use for Reverse mortgages. The problem with it, is that it’s not high enough to help all of the Senior community. Yes, it’s better than before, but it’s not helping those Seniors who are stuck with payments on large loan balances.
I have found, that most Seniors, if they have a mortgage, the balance is usually pretty small. But unfortunately there are many of them that took advantage of the lower interest rates the last few years and the “No proof of income” requirement and took out loans that they would have never been able to qualify for, much less be able to make the payment that would be required.
I have a situation right now, where my client is so over encumbered, that she would have to bring in $30,000 to complete a Reverse Mortgage. Of course she is approved for the loan but due to her youngish age, the amount of funds from the Reverse loan ( It’s calculated on her age), can’t cover all that she currently owes on two mortgages that she has.
If only HUD had decided to use the larger figure of $625,000 that they were considering for the new lending limit, I would be able to help my client. She’s disabled, on SSI and using the funds from a traditional line of credit to make her two mortgage payments and has no other money.
She’s heading for a foreclosure if I am unable to negotiate with the lender to reduce the payoffs so that we can complete her Reverse loan. And I’m pretty upset about this and very angry at “those” who put her into this position.
Another example of greed and stupidy of the lending industry. It’s hurting the Seniors, too.