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