The summer home or a rental home.

The summer home or a rental home.

Once again I would like to open your minds a little to the possibilities with a reverse mortgage.

The concept of a reverse mortgage as simply a negative amortization loan on a senior citizen’s home is a very narrow mindset. At 62 years of age I hope to still be seeking out additional sources of income as well as a better life for my family and me.

A reverse mortgage is a way to make sure that my home is safe and sound, and tied to me at the hip for the rest of my life. Now that I have accomplished that, lets see what I can do with the equity that I have unlocked.

I can leave it in the credit line to insure growth in the value of my home….OR….I can use it to meet my goals. If I find that perfect vacation property on sale, and the price is less than my credit line, I just might pay cash for it. That way I have two homes, both locked to me for life (no mortgage payments), and my lifestyle has just improved dramatically.

If I am still worried about generating more monthly income, I might look for a local rental property instead of the vacation home. This way I would have two homes, with no mortgage payments, and a rental income.

Better yet, why not get the best of both worlds. I just might find that vacation home in a great location, and start renting it out on a weekly basis to vacationing families. That way I would have two homes, no mortgage payments, vacation property rental income and a couple of weeks of the vacation property set aside for our family.

Life is great.

Bob

bob@az62.com

www.az62.com

623-214-6663

Part 2 : How Expensive is a Reverse Mortgage?

Part 2 : How Expensive is a Reverse Mortgage?

Yesterday I addressed the origination fee of a reverse mortgage. Today I will address the other major cost in acquiring a reverse mortgage, the MIP (Mortgage Insurance Premium).

First, know that all costs of a reverse mortgage are built into the loan and are not out of pocket expenses.

The mortgage insurance premium (MIP) for the HECM reverse mortgage is paid in two ways. The initial MIP cost is 2% of the homes appraised value. During the life of the loan you will also pay an MIP payment of one half of 1 percent of the loan balance each year to support the benefits.

Is this expensive?

To answer this question, just like any insurance policy, you need to look at the benefits you are gaining from the cost.

Benefits:

1) Guaranteed monthly payments for life, no matter how long you live. (If you take the tenure payment option on this loan.)
2) Every $ that you are entitled to in this program, you get. It is all backed by the government

3) Your estate is never liable for any excess debt from the reverse mortgage other than the asset of the home itself. If the market drops, they can walk away from the debt.

4) Your estate gets 1 year without any payments to settle the home and reverse mortgage.

5) You do not have any mortgage payments for life.

So lets assume that the home is $250,000. This means that the MIP is $5,000 to begin the loan. An additional amount of one half of 1 percent of the loan balance is added to the loan each year to cover the additional risk. Be perfectly clear that these fees are part of the loan itself and do not come out of your pocket.

So to answer the question, “Is a reverse mortgage too expensive?”, answer this question. Can you buy an annuity, an insurance policy, or any other financial instrument that will guarantee income, limit liability, and honor your estate for this price?

NO

Bob

bob@az62.com

www.az62.com

623-214-6663

How expensive is a reverse mortgage?

Many people who has not researched a reverse mortgage will say that they are too expensive. When you ask them what they mean by "too expensive" they really do not have a detailed explanation. That's not unusual though, its common for people to get a concept in their head and then just quote it as true. Its human nature.

So lets address the two major costs of a reverse mortgage and find out the truth. The two major costs are the origination cost and the MIP (Mortgage Insurance Premium). We will cover the origination today and the MIP tomorrow.

The origination cost.

The loan origination on a reverse mortgage can be up to 2% of the loan. This is the maximum for the HECM product line (Maximum allowed by HUD). On a loan of $250,000 this cost can be up to $5,000. No wonder people cringe when they see that number. That is a large up front cost. The question is, "Is that expensive?"

The answer is no.

Banks either make their money on the front side of the loan (charging points or origination fees), or on the back side (charging higher interest rates). If you know anything about home loans, you know that you can "buy down" they interest rate by paying up front points.

Now lets consider the HECM reverse mortgage. This loan is an adjustable loan that is set at the treasury bill plus 1.5%. Most home loans are set on LIBOR (the London interbank exchange rate). The value of the reverse mortgage is that it is set against the government's credit rating, not an international bank's rate. Today LIBOR is 3.07% and the 1 year treasury bill is 1.67%. The other component which is the interest above the rate, which for the reverse mortgage is 1.5%.

So here is the test. Go into your bank and ask them for a mortgage loan with an interest rate of the 1 year treasury bill plus 1.5%. After they say no, tell them you are willing to pay up front points to get the loan. When they come back to you a few days later, you will find that it costs you much more than 2% to get that rate.

So in the end, you see, the reverse mortgage origination fee is not "too expensive". It does cost a significant amount of money, but you are buying the rate. Just like many other things in a reverse mortgage, the costs are all up front. It may look expensive, but in reality....its a good deal, a government entitlement for seniors.

Bob

bob@az62.com

www.az62.com

623-214-6663

Living a better life.

Living a better life.

Reverse mortgages can be used for many reasons. Some are serious and help seniors in cases of emergency situations. Other reasons are more personal. The most personal of all is the reason that you are simply doing it for YOURSELF.

I can’t wait until I am 62 and can have my home support my interests. I will put the money in the credit line and enjoy the fruits of my home’s equity working for me.

With my equity in a credit line, at today’s interest rates and county limit, I will have about $9,000 a year in growth on a credit line that I will NEVER have to pay back. This is not money that will hurt my credit line. This is not money that will lower my available equity, its just money for ME.

Here is what I would do with that money for the first two years.

Year 1:

Diamondback Baseball Game (Front Row 3rd base Box) : 4 Tickets $800

A Luxury Car on the California Zephyr (An entire train car Chicago to San Francisco) : $4,000

Cash to eat fresh, healthy food every night : $2,500

Gym membership : $500

A really nice Christmas Gift for that someone special $1,000

Year 2:

Travel to Germany and rent a Porsche 911 Turbo Carrera GT2 for the Autobahn : Travel $2,000 : Car Rental $3,200

Stay In Europe for an extra month : $3,000 (Spontaneous)

You see, in my mind, being 62 is not old, its a time for my dreams to come true.

In this scenario I just spent two wonderful years with memories that will last the rest of my life, and my credit line on my home is the same as it was when I started…..and no mortgage payments.

What a great life….What a great country.

Bob

bob@az62.com

623-214-6663

The Great Estate Tax Deduction

Here is a fact that most seniors do not know about reverse mortgages.

A reverse mortgage is a loan that accumulates interest over time even though there are no payments due on the loan.

The government has established a mechanism by which the estate (your kids) get a tax deduction for the entire amount of the interest accumulated over the loan.

Example: If the parent gets a reverse mortgage and over a 20 year period accumulates $40,000 in interest on that loan, at the time of settlement of the reverse mortgage debt, that interest becomes a tax deduction for the estate.

Remember, the estate has the choice of paying off the reverse mortgage debt, selling the house and gaining the profit from the sale, or if the house is worth less than the reverse mortgage debt, they can simply turn the house into the bank. The loan is non-recourse for any asset except the home itself. All the belongings in the home, the car, and all other assets besides the home itself are property of the estate.

No matter which decision they choose, the interest accumulated on that debt is a dollar for dollar tax deduction on that estate value, or it can be granted to one of the heirs as a personal tax deduction.

Bob

bob@az62.com

www.az62.com

623-214-6663

Watch that Service Fee

Watch that Service Fee

Most people do not pay much attention to the service fee in a reverse mortgage. This is a fee that varies by lender between $25 and $35. Big mistake.

In calculating the Net Principal Limit (The money coming to you or being placed in your credit account), there is a large chunk of money called the “service fee set aside”. Since the government has designed the reverse mortgage so that you will not have to pull out your checkbook to pay any monthly payments on the reverse mortgage, the service fee set aside is a lump sum that takes care of those monthly payments for you.

The service fee set aside is an interest bearing account that is set up to pay service fees until you reach the age of 100. Depending on your age and the monthly fee, this can range from a few thousand to 7 or 8 thousand dollars. These dollars are taken from the net principal limit to you or your credit line dollar for dollar.

So make sure you negotiate the $25 service fee.

Enjoy the extra few thousand dollars.

Bob

bob@az62.com

www.az62.com

623-214-6663

93% approval ratings

93% approval ratings

The AARP research report on consumer satisfaction on reverse mortgages was a landmark study that showed that the general public opinion differs greatly from the opinion of those who are educated on reverse mortgages.

The study found that 93% of of borrowers said that their reverse mortgage has had a positive effect on their lives. Only 3% said it had a negative effect.

Its an amazing figure, but to give it the impact it deserves, lets compare it to other studies of satisfaction and levels of achievement.

On 9/11/2001 George Bush had the highest approval rating of any president in history. Obviously it was a patriotic statement by Americans, but it was still only 92%.

In movies, The Shawshank Redemption, The Godfather, The Lord of the Rings, Star Wars, Raiders of the Lost Ark, and Schindlers List are all tied on approval ratings of people who liked the film. Their approval rating was only 90%

Highest Lifetime batting average in baseball : Ty Cobb 36.7% (.367)

Highest NBA field goal percentage for a single season is : Wilt Chamberlin with 72.7%

It is unbelievably hard to reach a 93% approval rating or rating of any type in any sport, business, or position. The fact that reverse mortgages hold such a lofty approval rating can mean only one thing.

The portion of the American public that has never studied reverse mortgages has a misconception of reverse mortgages. The portion of the American public that understands reverse mortgages LOVE THEM.

Bob

bob@az62.com

www.az62.com

623-214-6663

Treasury Bill vs. LIBOR

In a reverse mortgage you will find that the loan is calculated on a percentage above the 10-year treasury bill. In most home equity loans you will find that the loan is based on LIBOR. It is important to know the difference and the value that the loan that is based on the 10-year treasury bill.

The treasury bill is is an instrument by which the government borrows money from its citizens. This means that your loan is tied to the borrowing rate of the U.S. Government.

LIBOR : Is by definition : London Inter-Bank Offered Rate : This is the rate that banks in England will exchange funds that are covered by UNSECURED loans.

This is another reason why reverse mortgages are a government entitlement. Not only has the government spent tens of millions establishing this entitlement, but it has also tied it to its own credit rating.

Bob

bob@az62.com

www.az62.com

623-214-6663

A Tough Time in Life

I cannot imagine what it must be like when you love someone for the majority of your life and then they pass away. When a senior couple becomes a senior single there are things that happen financially that most people do not understand or even know about.

You have lost more than your partner. You have lost someone who helps you make decisions, and a person who helps you with income.

I can still remember the first time I ran into a senior who had lost their wife. I was impressed by the way they were handling their emotional loss, but I was also saddened by the effect that the loss of that wage earner had caused to their lifestyle.

Not only had they lost the social security benefit that their partner was receiving, but in their case the pension did not pay the surviving partner any benefit after the death of his wife.

His monthly income that had been fixed for the last 12 years had just dropped by 50%. This drop of income happened at the time in which he was least concerned about finances. He was mourning the loss of his wife. The cash flow really had little meaning to him until he started running out of money.

He should have taken an evening to sort things out. In just one evening of taking a look at your finances you can stop the unnecessary drain on your savings, and set up a new budget for yourself.

If you are in this position, here are some tips.

1) You need to cancel any subscriptions , health care policies, or memberships that your spouse had that you do not absolutely need.

2) Review your checking account for monthly automatic deductions that may be from an activity or interest that your spouse had that you no longer need.

3) If you had two cars, now is the time to sell one. You don't need the extra expense of upkeep, insurance, and payments (if you had a loan on the car)

4) Your spouses family (grandkids, kids, sisters or brothers) might have been getting financial help from your spouse. You need to take a close look at your finances before you blindly continue to support that person.

Remember, with the death of a spouse, you will be losing a portion of your income. To think that you can continue under the same budget is a mistake. Even though it is a tough time to think about money, you need to, or it will cause more heartache down the road.

bob

bob@az62.com

www.az62.com

623-214-6663

Simple Math and Reverse Mortgage hints

Too much math in reverse mortgages to make sense to you?

OK, lets look at the simple numbers.

1st Number: The amount of money that is available to you. There is a number on each reverse mortgage that the government puts out that tells you how much money you can get. It is a percentage. The number for a 62 year old today is 0.5527, which means that you can get 55.27% of the equity in your home. (Example : $200,000 home with no mortgage on it. A 62 year old can get $110,540 in cash and have no mortgage payment for the rest of their life)

2nd Number: The interest rate. The interest rate on the most popular reverse mortgage loan is "The ten year treasury bill +1.5%". You can call any bank or broker to find out the price of the 10 year treasury bill. Simply take that number and add 1.5 to it...thats your interest rate on that product.

3rd number: Line of credit growth. This is the amount of growth that your line of credit experiences. This is your interest rate +0.5%. (They call it growth because it is not taxable like interest.) Because the credit line is compounded daily it is best to look at your statements each month to see the growth.

Hints:

1) Your loan amount is growing by the 2nd number I listed above. Just because you do not have any payments due, does not mean that you can't pay on that amount. Be smart. If you have extra money that is earning less than the interest rate on your loan, pay it down. The amount you pay into the loan goes immediately to the credit line. You have access to that credit line at any time. (It takes 5 business days or less for you to receive that cash.) Treat a reverse mortgage like YOU are the bank. Put your money where it works best for you. The reverse mortgage credit line is backed by the bank and by HUD.

2) HUD allows banks to charge $25, $30, or $35 for servicing your reverse mortgage. There is really no difference between the numbers except for what a bank wants to charge you. Always push to get the $25 service fee...it will save you $120 a year.

Bob

bob@az62.com

www.az62.com

623-214-6663

The kids just don't understand

"I heard"

"Someone told me"

"I read somewhere"

These are the top reasons why kids tell their parents not to do a reverse mortgage. What happened to people doing research for themselves? What happened to looking at facts and looking at the numbers for your own? It just seems crazy to me that people are living their lives on rumors.

I have always wanted my parents to have the best life possible. They were kind enough to raise me right, feed me, clothe me and put me through school. Why would I tell them that a reverse mortgage is not right for them without looking specifically at the numbers that are generated by every HUD approved lender when someone is looking into doing it?

Just take a look at the numbers people. They show you the truth and not what you heard from someone.

Bob

bob@az62.com

www.az62.com

623-214-6663

Home repairs

HUD requires a home inspection prior to approving a reverse mortgage. This inspection covers the bare minimums for being approved. It does not mean that you are limited to doing those repairs.

A smart senior plans repairs around the reverse mortgage.

If the repairs need to be done right away, go ahead and pull money out of your credit line to do the repairs. Your current interest rate on the reverse mortgage is about 3.5%. Use it for materials purchases and contractor payments. It's much cheaper than the home depot credit card rates.

If you can wait to do the repairs, let your credit line grow until it reaches the point at which you can just use the credit line growth for the repairs and not use any of the original credit line.

Remember, when you have a reverse mortgage, you are the bank. Timing the use of your credit line can help make you more money.

Bob

bob@az62.com

www.az62.com

623-214-6663

Three big things and three little things to watch

Whenever you are considering doing a reverse mortgage (and I believe that 90% of seniors would benefit by doing a reverse mortgage), you should watch the three big indicators of what this entitlement will do for you.

1) If you are taking money out, take a look at the loan schedule and see how fast the loan grows, how fast the credit line (remaining equity) grows, and lastly how much you are actually getting. (Remember to account for any payments you are saving from not having to pay an existing loan payment since it was paid off by a reverse mortgage)

2) If you are not taking money out, take a look at the loan schedule and see how fast the credit line is growing. This is the amount that you can take out at any time for emergencies and/or to give a gift to someone. See how long it takes for that credit line to be worth more than your home. (Remember the reverse mortgage is a non-recourse loan, so you can give the entire credit line to your heirs while you are still alive, tax free, and simply turn the house over to the bank after you die.)

3) If your family wants to keep the home after you pass away, and not sell it like most estates are doing now these days, then watch your loan balance. Remember, a reverse mortgage grows at only 1.5% above the 10 year treasury bill. This is the lowest percentage rate in the industry. You can pay the reverse mortgage all the way down to $1,000 before the bank will try to close the account. Emergencies happen. With a huge credit line over time, you will be ready for the emergency. If you don't use the money, your heirs will still have the home and still get the tax deduction for all of the interest you paid. The easiest way to explain this benefit is to remember that a home is your family and not the bricks that make up your house. Getting a reverse mortgage and NOT spending the money is a great way to make sure you are doing the best thing for your family and not just the house.

The three little things to watch are:

1) Service fee....make sure you negotiate your way down to the minimum $25 service fee.

2) Referrals : Does your mortgage company take care of, and actually communicate with its customers after the loan?

3) Annuities : Make sure you do not jump into an annuity with the cash from your reverse mortgage. You should be signing a paper in your loan documents that makes the lender announce any annuity that is included in the loan. Some states have even outlawed this practice. Do not do it under any circumstances.

Bob

bob@az62.com

www.az62.com

623-214-6663

Moving in with the Kids

Moving in with the Kids

How seniors are helping save their children’s homes.

There are alot of families that are facing hardships today. They are being forced to leave homes and move into apartments because they cannot afford their mortgage, or moving in with parents because they lost a job or have run into financial trouble. There are even many cases where the parents have moved in with the kids so that the family can afford to stay in the home.

Here is the fun part of the story. There are a few cases where the parent, who was not wealthy by any stretch of the imagination, has helped save the child’s home simply by moving in. How is that possible?

Since the parent was over 62 they were eligible for a reverse mortgage.

The parent moved in with the child, the child and the parent did the paperwork to deed the home over to the parent under a reverse mortgage and have the home willed back to the child should anything happen to the parent.

The result was a family who was saved by the parent, not with large sums of cash, but simply by using the parents entitlement to a reverse mortgage. Each of the families now live in a home without mortgage payments, a loan that is only growing the debt at a rate around 3.5%, and each family is able to work out its financial troubles on a lower monthly budget.

Way to go mom and dad. I love family stories with happy endings.

Baby boomer’s Retirment Plan Loophole

The old way of thinking about retirement was to sell your home, downsize to a cheaper home, and keep a little of the equity from the sale of your family home to live off of for the rest of your life. That was when the family home was huge and downsizing was common sense because you didn’t need all the extra bedrooms.

Now more and more people are retiring from a condo or townhome in the city to a larger home in the country, at the beach, or in a sun filled state like Arizona. Baby boomers want a large home to stretch out in, a home with a great back yard, a huge patio and maybe even a pool. They love houses on golf courses, on lakes with a boat, or in a community of people who have the same interests.

Here is the loophole. Instead of having to sell your home and add money to buy this dream retirement home, or even worse getting a new mortgage to pay for the home, Baby boomers, or anyone at or over 62 years of age can simply get into the home with a reverse mortgage. The reverse mortgage allows them to put in just a fraction of the amount of the home, live in it for the rest of their life with no mortgage payments, and retain title to the home.

Example: A Baby boomer who just turned 62 years old can sell their condo for $130,000 and move into a $260,000 home without having to add a cent. For every year older than 62 that you are, the percentage of the value of the home that you have to pay to buy that home gets smaller and smaller.

Its a great time to retire.

Bob

bob@az62.com

888-277-4990

Reverse Mortgage case study 2

Welcome to 62 Babyboomers!

A 62 year old senior owns a home and is retired. They have a good income from a pension (or investment portfolio), and they are getting ready to start receiving social security. They have decided to get a reverse mortgage on their home and leave the equity of the home in a credit line on the reverse mortgage. The value of their home is $250,000

Here is what happens to their available cash line of credit.

At the time of the loan the credit line was established with $137,727

That credit line is based on the amount of cash the government will allow for that value of home without a current mortgage debt (house is paid off), and for a person of that age. Over time, this is what happens to the line of credit.

5 years : $181,389

10 years : $238,891

15 years : $314,623

20 years : $414,363

25 years : $545,722

30 years : $718,724

This is why a reverse mortgage is a senior citizen entitlement. This is guaranteed growth over time that happens no matter what happens to the value of your home.

When a senior turns 62 years old, if they get into a reverse mortgage, they are setting up a credit account that they can use at any time in their life. You don't have to go to a bank and apply for a loan. You are now the bank.

If your home goes up in value, great, that equity is yours as well. If your home goes down in value, who cares, you still are gaining asset value with the credit line. If you have an emergency, you can pull out whatever you need, whenever you need, with no transaction fee, no penalties, and no tax implications.

Bottom line....a reverse mortgage guarantees that your home grows in asset value no matter what happens to the housing market.

Still have questions?

bob

bob@az62.com

888-277-4990

Government Entitlement, What does that mean?

A reverse mortgage is a government entitlement. The U.S. government has invested tens of millions of dollars to establish the reverse mortgage program. They have limited it to seniors because it is an entitlement for senior citizens. Reverse mortgages provide guaranteed growth in credit lines if a senior leaves the equity in the home, guaranteed monthly income if the senior sets up tenure payments, and the ability to pull the equity out of the home if the senior needs the money now. The additional benefit the government offers is the ability to stay in your home without any additional mortgage payments for the rest of your life.

The best example of another senior citizen entitlement is Social Security.

I hear people say to me every day that reverse mortgages cannot be an entitlement because they cost so much. My answer is always, "How much did you pay in to receive social security?" Entitlement does NOT mean free. Entitlement means that it is of benefit to the person who is getting it.

Entitlements are heavily regulated by the government. If reverse mortgages were a bad thing, the government would not continue to support the program.

Getting seniors to educate themselves on reverse mortgages is the hardest part. What you do not know about reverse mortgages costs you money.

bob

bob@az62.com

www.az62.com

623-214-6663

For all who think Reverse Mortgages are bad

Besides the fact that reverse mortgages are backed by HUD, and that they are considered entitlements by the government, people still bad mouth the product. Its time to consider some individual cases to determine what a reverse mortgage really does for a senior.

A 70 year old senior citizen is living on a fixed income of $1200 per month.

Two months ago they were just prescribed medicine by their doctor that costs $300 per month.

They own their home, but their savings has been dwindled over the years so they really do not have much to draw on to pay for living expenses or for the new prescription.

Their options are :

1) Skimp on food, skip all forms of entertainment or "going out", and try their best to live on $900 per month.

2) Get a $100,000 mortgage on their home, with monthly payments of $890 a month.

3) Get a reverse mortgage on their home, and get $61,000 in cash (or a credit line that grows over time), and get to live in their home for the rest of their life.

The government wants you to live in your home for as long as you can. The cost of assisted living outside the home is extremely expensive. If the senior got a forward mortgage for $100,000 there is a risk that they would default on the loan and be faced with a very bad future.

Are you starting to see the benefits of a reverse mortgage?

(More case studies to come)

Bob

Bob@az62.com

www.az62.com

623-214-6663

Borrowing From the Parents

Parents will do almost anything to help their children and grandchildren. Ever since they were born, the parents have been responsible for their health and well being. So what happens when a grown child, or a grown grandchild tell them about a problem that they have? Of course, the parent or grandparent step up to try to solve the problem. It's what they have always done. From the first time the child or grandchild went to the bathroom in diapers and had to be changed, to the first steps and first bruise, to pushing a good education on a reluctant child. Parents always know whats best, and always see that child or grandchild as a little boy or girl.

Mom, I let my credit cards got out of control.
Dad, I need to get a house so that I can get married.
Mom, I lost my job and cannot afford my house payment.
Dad, I got behind on taxes and now the IRS is calling me.
Mom, we just found out that our child is sick and needs hospital care.

There are many ways that a child or grand child can ask for help. There are only a limited number of ways that parents can help.

If one of those ways is to get a loan on your home.....WAIT.

Things you should know:

1) A regular mortgage puts your home at risk if you are ever unable to pay the payments. Are you depending on the child or grandchild to pay you back as they have promised they will?
2) A regular loan will always charge you more interest on the debt than a reverse mortgage. If you have any bad marks on your credit the difference can be up to 5% more interest paid annually on a regular mortgage.
3) A regular loan takes you "out of retirment" and puts you back on the clock. Payments are scheduled and therefore you are back on a schedule.
4) A regular mortgage is a one time solution. It does not prepare you for any future emergencies. A reverse mortgage gives you a credit line, that grows over time, and is availble for you when you need it.

Bob
bob@az62.com
http://www.az62.com/
623-214-6663

Reverse Mortgage Humor

If you think that marrying someone under 62 years old is financially irresponsible...you may be a reverse mortgage loan officer.

Neighbor 1: Hey have you seen Irma?
Neighbor 2 : No, ever since her house bought her an RV she has been out traveling the nation.

If you call your parents every day asking them to move in so that you can get a reverse mortgage on your house...you may be a reverse mortgage loan officer.

Have you heard that 94% of all the homes that seniors live in are unemployed?
Yup, the other 6% work for HUD.

If you will buy a mobile home as long as the wheels are removed, it has a foundation, permanent tie downs and the land comes deeded along with the mobile home....you may be a reverse mortgage loan officer.

Bob

bob@az62.com

www.az62.com

623-214-6663

Where does your mortgage payment go?

Lets talk a bit about forward mortgages. (Forward mortgages is a name given to traditional mortgages by the reverse mortgage industry.)

Every bank uses the phrase “Pride of Ownership”. We all know that you do not really own all of a home until the mortgage is completely paid off, but what about when you have 50% of the mortgage paid off? Do you have pride of ownership then?

If you have a traditional mortgage and have 50% of the home paid off, you are said to have 50% equity, or 50% loan to value. What happens to that 50% that is paid off? Who benefits from it? Do you receive any benefit from having 50% of the home paid off? Yes. You receive the opportunity to remove the extra insurance policy that banks have for people who have less than 20% loan to value. Being able to not pay the bank an extra fee is not really a benefit, but I wanted to include it just to make a point.

You do not really benefit from having 50% of your home paid off, other than owing less money in total. Your payments do not go down, unless you refinance. If you have a late payment, or miss a payment, you pay fees, and charges and your credit score is effected negatively. It doesn’t seem right that a customer who pays a bank on time for 10 or 15 years, and then has financial trouble, is treated the same way as a person who has not paid on time from day one.

The bank does benefit. The bank’s portfolio of loans has a loan to value just like your home. When a bank has a better loan to value, they can get more investors, get more money to loan, and earn more money. For that benefit that you give them, what do they give you? Nothing.

What if you had an emergency and needed some of that 50% equity, could you go into the bank and get it from a teller? No. In order to touch that money you would have to go through an entire loan process. They would check your credit, do another home appraisal, and possibly even charge you points up and a higher interest rate than your 1st mortgage to access that equity. On top of all that your monthly payments would go up significantly.

Now take a quick look at a reverse mortgaged home in the same situation. Don’t think that a reverse mortgage is ONLY for removing all the equity in the home. A senior that gets a reverse mortgage, replacing their current mortgage, and leaves the equity in a line of credit, has the following benefits over a forward mortgage.

1) No monthly payments

2) No late fees for missed payments

3) No negative performance on their credit report

4) Immediate access to their line of credit

5) No credit check or other requirements for taking from their line of credit.

6) No additional forms or contracts to sign for taking from their line of credit.

7) Growth in their line of credit over and above the cost of the loan.

8) The ability to make payments against their loan whenever they want

9) Immediate transfer of principal from loan balance to credit balance.

10) Self management of entire credit and loan accounts…on your own schedule…after all you are retired aren’t you?

Retirement means that you are free from time clocks. Why are you still punching in every month with your mortgage?

Bob Fisher

bob@az62.com

www.az62.com

623-214-6663

Using Reverse Mortgages to cure Sub Prime Problems

If you are a senior who currently has a sub-prime loan, please take notice. The current rates on reverse mortgages are around 3%! You really need to have someone provide you with information on how to convert your current mortgage to a reverse mortgage. I cannot speak loudly enough on how much you will save over the long run.

The sub-prime loan problem has hit all of America. A low initial rate followed by outrageous interest rates has been the biggest bait and switch in history. It has hit every age group, young and old.

In hard times turn to your family. Its good advice. Let me give you some advice on how to work within the family to achieve long-term stability.

1) If the borrower is over 62, and there is still equity in the home, do a reverse mortgage immediately.

2) If the borrow is under 62, and there is still equity in the home, and you have a mother, father, or trusted relative over 62 living with you, deed the home to that relative so that they can do a reverse mortgage and you won't lose the home.

3) If the borrower is under 62, and there is still equity in the home, and you have a mother, father, or trusted relative over 62 that currently, or can in the future, live with you for 3 months out of the year, deed the home to that relative. Even if they have a reverse mortgage on their primary home, they can, under those circumstances, do a secondary home under a reverse mortgage. (Please note that the interest rate on a secondary loan is higher, but it does stop the monthly mortgage payments, and you can start paying down the principal of the reverse mortgage with any money you can afford to put towards that purpose.)

The key point I am trying to make is that individuals over the age of 62 can get out of the incredibly high mortgage payments that are being forced on homeowners who signed up for a sub-prime loan with a "teaser" rate. I am also trying to re-enforce the fact that in hard times like these, senior citizens have the entitlement of the reverse mortgage. If you are not a senior citizen over the age of 62, then contact one that you trust to help you get out of your sub-prime loan. Deeding the home to them, having them live with you, and willing the home back to you after they pass, is one of the best ways to save your house from foreclosure.

Bob bob@az62.com

www.az62.com

623-214-6663