How is a Reverse Loan Done?

The following is the 3rd. part of an article I previously wrote about how to locate information about Reverse loans without ending up being hassled by sales people and  some good advice about applying for a mortgage in general and what to expect during the process.

Part III

If there’s one’s thing to understand and remember, the “cost of money” is always changing.

Don’t’ shop for a loan based on the interest rate and how much you are willing to spend to obtain that particular rate.

I guarantee it, it will change.

Reverse loans do not have a mortgage payment as a traditional loan does.  Naturally if you are looking to do traditional financing it stands to reason that you will look for the lowest rate possible and depending on how much you are willing to pay in Points, to get the lowest interest rate.

(But that method does not apply to Reverse mortgages, because there is no mortgage payment.)

However, the trade off is that the lower the interest rate quoted the more expensive it will be to purchase in both types of mortgages.

The point of doing a Reverse loan is what will the benefit be to the borrower?

  • Increased cash flow each month? Eliminating an existing mortgage payment?  Leveraging a retirement portfolio?  Caregiving or medical expenses?
  • Maybe buying a vacation home? Yes, money from a Reverse loan can be used as a down payment on another property.
  • Purchasing a new home that they will occupy?

And what are/is the age of the potential borrower/borrowers?  What is the value of the property?  The loan amount will be calculated upon the age of the youngest borrower (If there are two of them) and a percentage of the appraised value.

This figure is referred to as the Principle Limit.

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