February 2017

Confusion Over Reverse Mortgages

There are a lot of confusing parts and details to Reverse mortgages because they are so different from a traditional loan but it’s difficult to know where one can find honest and reliable information about them.

I have written an article about this topic and following is the 4th. part of it.

Part IV

If the Line-of-Credit HECM is used and a borrower is looking to have the funds in it increase over the years, they can take advantage of the Growth Feature which is included in the Line-of Credit program.

By choosing an initially higher interest rate at the start of the loan and if the borrower does not take a “Draw” (Or they take a small amount) at the close of Escrow, they will see the funds in their account increase over the following years.

These funds are not income, therefor not “taxable” and can be used to enhance any retirement savings or portfolio by avoiding any “drawdowns” on their investments and possibly avoiding “tax” consequences.

If it’s a situation of paying off an existing large mortgage and they want additional cash for monthly expenses, then using a lower interest rate might be their best solution or even using a Fixed Rate Reverse loan.

Maybe they don’t want to have to pay any costs for the new loan and in that event, they could do a” No Costs” Reverse loan, but at a slightly higher rate than if they opted to pay for the costs associated with choosing a lower interest rate.

And so, it goes.

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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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Shopping for Mortgages

This is the second part of any article that I wrote about locating information about Reverse loans without getting “slammed” by a bunch of irritating sales people.

Part II

Your loan will have to go through a processing procedure and under the best of circumstances it will take about 45 days or maybe less to complete (Assuming you have provided everything the Lender needs on your file), which “then” the interest rate is locked and the loan documents are ordered.

Meanwhile, the “cost of money” is fluctuating every day.

Just like the cost of that television you were interested in purchasing.

Let’s say someone told you that they could give you a traditional 30 Year Fixed rate at 3.250 % at zero points.

By the time you have sent in your personal documentation, signed a loan application and disclosures, the appraisal is completed and your loan has finished processing, that rate could cost more or maybe less, but most likely it won’t be the same as what you were told when you did your initial phone call weeks before.

I will be posting the next section of my article in a following post.

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How to get Information about Reverse Loans

“Shopping” for a Reverse loan is not anything like “shopping” for a traditional mortgage due to the complexity of the pricing and how the amount is initially calculated.

People are accustomed to shop for a mortgage based upon the interest rates and Points and making many phone calls asking about rates and fees from Lenders or Brokers and spending countless hours on the Internet “looking” for the best deal.

(But you can’t apply this technique as you would if you were looking for a new television, because you would probably buy it the day it is advertised at whatever the price is at that time.)

See what my clients are saying!

The problem with using this approach for researching Reverse loans or traditional mortgages, is that it simply isn’t a reliable technique and using this method will only end up making the search confusing and overwhelming.

Plus, unless you are actually signing a set of loan documents (AND THIS IS CRUCIAL) on the same day someone gives you a “dubious” quote (And I have to say that, because they are trying to lure you in, telling you what you want to hear), it doesn’t matter.

Because my article is a bit long, I won’t post all of it here but instead share it in subsequent posts.

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Reverse Mortgages and Shopping for One

I have been in lending for over 30 years and for the last 17 of them, I have been specializing in originating Reverse mortgages to seniors throughout Central and S. CA.

In the period of time that I have been professionally involved, I have seen a plethora of competition evolve, trying to “capture the market” and many of them failed to understand why working within the senior community isn’t about “sales” but trust.

I have heard the experiences of some of the counselors from HUD approved counseling agencies, how they are pressured by a Reverse loan sales agent to rush through the counseling, so that they can quickly get an application into a Lender.

I have one word for this kind of behavior.

No actually I have two.

Obnoxious and unprofessional.

Many of these companies gave up after they discovered the difficulty in originating any business and the also found out that it was very unlikely they would be funding enough of them each month to make their own business profitable.

And what has developed in this period of time, is a type of sales person in a Call Center that a consumer either responds to through an Internet ad or one of those television ads and I decided that it was time for me to share my thoughts about this method and how a senior can educate and research for information about the FHA Reverse loan without being overwhelmed by solicitation.

This resulted in an article that I will begin to posting here in my blog, beginning with the next one.

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Reverse Loan Consultant