I received a call the other day and although it was pretty normal, I wanted to share it with you. The caller said, “We’re considering a reverse mortgage because we heard we could get monthly payments or a credit line”. I respond, “Yes, but let me ask you a few questions”. My first general questions determine qualifications as both borrower’s must be at least 62 years old and occupy a home that also must meet basic qualification standards. I get their home address and quickly look up comps to get an idea of the value and the next questions are very important…. “Do you have a mortgage and what is the balance?” With the drop in home values it’s critical to determine if the reverse mortgage will provide enough money to pay off the existing mortgage. Why would people want to refinance to a reverse mortgage? Simple. Since the reverse mortgage requires no monthly payments, their cash flow will increase by the amount of the current payment on the mortgage. Depending on the value, their age (older borrower’s get more money than younger) and mortgage balance, they may also be able to get a lump sum of cash, a line of credit to access in the future or monthly payments that continue until the last homeowner leaves the home permanently.
My caller had enough equity to pay off the existing mortgage from the reverse mortgage but not very much more was available. They quickly determined the reverse mortgage would work well for them because it would eliminate the mortgage payments they were making.
I soon learned that refinancing to a reverse mortgage was even more beneficial to them because they had an interest only loan that was going to reset soon. Their new payment would have taken most of their disposable income. Why do so many people have these types of loans? They were tempted by the low payment it offered for a few years and felt they could refinance in the future. With new restrictive conventional loan qualifying requirements, job losses and other factors many can’t qualify for traditional mortgages. My prospects didn’t like the negative amortization feature of the reverse mortgage, meaning, they did not want the loan balance to increase. “That’s okay”, I said, “You can make payments on the reverse mortgage just as you do with conventional mortgages although you don’t have to. There is no income qualification and even if you had late or missed payments on your existing mortgage, we won’t hold that against you.” (because you don’t HAVE to make payments, the lender isn’t interested in your ABILITY to make payments).
I sent calculation sheets with details of the closing costs. In this case, my clients preferred the fixed rate which requires a lump sum draw. With lender rebates I was able to offer the reverse mortgage with minimal costs (none were out of pocket) and no servicing fee. They were elated as they expected costs to be much higher from what they heard. Market conditions are always changing, but their timing was perfect!
For customized calculations and closing cost breakdown, call Maggie O’Connell at 800-489-0986 and more information is at www.ReverseMortgageStore.com
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