When this occurs, they look into a reverse mortgage line of credit. What a reverse mortgage does is it allows the homeowner to take their homes equity and covert it into cash. In other words, that equity that was built up through mortgage payments is paid back to the homeowner as income.

This is very unlike the traditional mortgage, such as the home equity loan of the second mortgage, because the money that is borrowed is not repaid until the homeowner no longer uses it as their primary residence. The loan amount may also increase with the age of the borrower because the amount of equity they have accumulated throughout their life.

To acquire a reverse mortgage line of credit, an individual doesnt have to have great credit, nor is a steady income required. The main factor at play here is that the borrower be the owner of the home.

And then there is the opposite of the reverse mortgage, which is the forward mortgage. This mortgage is what people acquire when they are purchasing the home. This is when good credit and a steady income are required. If they payments are made late or not at all, the bank can foreclose upon the home because it is the home that actually secures the mortgage.

As payments are made on a forward mortgage, the equity within the home grows. This is because it is the difference between the amount of the mortgage and what has been paid into it. Once the last payment is made, the homeowner then owns the home.

However, the reverse mortgage, which is the opposite of the forward mortgage, results in an increase of debt as the equity decreases. There are no monthly payments being made, but the equity is being consumed because of the interest that is added to it as the money is borrowed.

Finally, there is a time in which the reverse mortgage must be repaid and the amount could be large, which is dependent upon the length of the loan. If the homes value has decreased at any time, there may be no equity to borrow. If the value increases, then the amount of equity can increase, therefore increasing the amount of debt.

When it is time to repay the loan, it is usually the result of the homeowner selling the home because they wish to move into an apartment or an assisted living facility for easier living. They have no more use for the home, so it is no longer their primary residence.

So for those wondering what separates a reverse mortgage from a forward mortgage, this should explain that. This should also help to make the decision of whether or not to add to monthly income by using a reverse mortgage line of credit.

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Formerly I could give a customer hard numbers immediately. In other words I could tell them which interest rate and how much money they qualify to receive right off the bat.

Furthermore, my quote was relatively etched in stone for up to 4 months.

The 120 lock period is no longer available. Rather, the new pricing structure has much shorter interest rate lock periods. This likens itself to the forward mortgage market.

Since most reverse mortgages take longer than the lock periods some customers will get burned. Quite a few senior borrowers are banking on the reverse mortgage to come in and pay off their forward mortgage.

These folks need extra money and eliminating that payment associated with the mortgage is just the ticket.

Where I can see a problem is that interest rates play a major role in how much money a borrower can receive for the reverse mortgage. Too often the reverse mortgage is just enough to pay off the forward mortgage.

The amount of money a borrower receives is inversely associated with the interest rate. For instance, when rates are low, the borrower gets more money. Conversely when they go up, the borrower gets less.

Since some buyers are right on the cusp, they will be quoted one day. The lender will say, “good news, looks like you’ll be able to pay off your mortgage”.

Envision this.. Fourteen days later, when the borrower can finally lock in the rate, what if rates are up one percent or so. This borrower will be out of luck in as far as paying off that mortgage.

The borrower has the choice now of paying the difference between what the reverse mortgage company will lend, now much less than before, and his forward mortgage in cash.

We can see that a few of these borrowers will absolutely go through this in the coming months and years.

The new pricing should offer a better experience for customers such that it should, because of its complexity, sift out some of the weak reverse mortgage loan officers.

The stronger, more knowledgeable LOs will see this as old hat, know how to explain it, and probably garner more of the business.

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Supposing there is more than one person on the loan. The lender factors the youngest persons age as the determinant in the equation to find the loan amount.

Since one of the ways a reverse mortgage ends is when the last person on the mortgage passes on reverse mortgage lenders must play the percentages to reduce their chances of the loan amount inflating above and eliminating the equity in the home.

The thing the lender must take into consideration is how interest accumulates and compounds over time. The mortgage company has to lend less to the younger borrowers because they live longer, and interest has more time to eat away at the equity.

Where a problem rears its head is when husband and wife are getting a reverse mortgage and in need a large cash out figure. That figure may exceed that which the younger spouse qualifies to get, but is within reach of the older spouse.

How some people get around this is by disclaiming the younger spouse from the note and deed of trust. They can now cash out at the larger sum.

Fabuloso! The borrowers have their needed cash.

There are, however, ramifications to this maneuver. The biggest one centers around the little known fact that sometimes we, as mere mortals, occasionally die.

The bank will at some point discover the eldest borrowers death and will demand payment. The younger spouse then has about twelve months to return the due amount.

Since reverse mortgages are generally used on a I need the money because I need the money basis, chances are the surviving spouse will need to sell the home at that point.

Houses are more than just buildings, and that is especially true for seniors. A house is a memory-filled home. If disclaiming a spouse to get a reverse mortgage is on the table, be positive the loan merits the probability of losing the home and its memories in the end.

Disclaiming the spouse should be done on a need basis and both spouses should understand and accept the future consequences.

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The name is somewhat misleading. A reverse mortgage is a loan that is structured like a mortgage, with YOU as the lender and the BANK as the buyer. In the U.S., homeowners wanting to initiate a reverse mortgage must be at least 62 years old, and own all or most of their home. These backwards mortgages are usually performed through a bank or broker. The homeowner essentially sells his or her house to the bank, in return for receiving periodic mortgage payments. Sometimes the payments can be structured as a lump sum, line of credit, or a combination of the three methods.

So what are the benefits to a reverse mortgage? First it provides a constant and dependable stream of retirement income. Many retirement plans such as 401(K) or Individual Retirement Accounts (IRA) generally increase in value, but are still tied to stock market interest rates. The amount of money they provide during retirement can vary. Social Security, Medicare, and other U.S. government programs have endangered funding, so they may not be reliable sources of income. A reverse mortgage can supplement a senior citizen’s income. The amount depends on the homeowner’s age, equity of the house, interest rate on the loan, closing fees, and a few other factors.

A common misconception about the reverse mortgage is that the bank eventually owns your house. This is not true! The deed remains in your name throughout the entire term of the process. Note that there is interest on the loan payments, but it is deferred until the loan is repaid.

The homeowner can remain living in the house during the entire term of the reverse mortgage. The loan becomes due when the homeowner moves out, or becomes deceased. At those times, the survivors/heirs can repay the loan themselves if they want to keep the house. They can also sell the home and repay the loan plus the interest in full. The money paid to the homeowner as mortgage payments must be repaid to the lender when the loan becomes due.

These odd mortgages can provide much needed financial support during retirement. It is a time when medical costs are likely to increase, so an additional source of income can really help. Use a reverse mortgage to help yourself or your aging relatives to gain the financial security in retirement that they worked so hard to achieve.

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After warming me up by praising my marketing skills, he asked me his burning question: What can you do different than any other guy to get me the highest possible amount of cash from my house?

I replied that I can’t. All reverse mortgage lenders use the same formula to arrive at how much money can be squeezed out of the loan.

So he asks me to use an appraiser that really does a “good job”. Of course this is code for an appraiser who fudges up his numbers to make the loan or transaction work.

His reasoning behind this is that a bigger loan will be handed out if there is a higher report of home worth.

He, like a lot of senior borrowers, are in a tough spot today with declining values. Most are looking to pay off a mortgage with a reverse mortgage, thereby eliminating the payment.

If the appraisal doesn’t come in high enough the reverse mortgage company can’t, in many cases, lend enough to pay off the borrower’s forward mortgage. The end result is the guy is stuck with that payment until values come back.

Appraisers are in a tough spot right now. Yes, they had the luxury for many years to trump up appraisals.

A totally “by the book” appraiser reading this might be a little hot under the collar. But everyone knows plenty of fudging was going on.

Presently everyone in the housing industry is being held responsible for the mortgage debacle, appraisers too. A closer eye is being kept on them than previously.

With the frequency of appraisal reviews taking place, appraisers could possibly lose their license if they don’t do things by the book.

After telling the man everything above, he said he would call me back and hasn’t. I don’t expect him to. I informed him that others might promise him an appraiser that would do exactly what he wanted.

Most lenders will promise it, but won’t do anything differently when it comes down to it. I choose to let seniors know all the facts and risk losing them as a client.

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