COMPLETE GUIDE TO REVERSE MORTGAGE CHOICES

Reverse Mortgage Blunders and Myths:

Most Loan agents are putting borrowers into the WRONG products

THE DEVIL IS IN THE DETAILS: HERE ARE THE DETAILS

Discussed here is which product is the right one for you out of all the choices. The answer may surprise you. A wrong choice of product could cost you thousands of dollars and this pamphlet explains the right products based upon getting maximum equity.

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Reverse Mortgage Myths:

MYTH #1: If I take out a reverse mortgage, I no longer own my home.

FACT: If you take out a reverse mortgage, you have complete control

over your home and can sell it or refinance it at any time, the same as a regular mortgage.

MYTH #2: A reverse mortgage is risky because it eats up all the equity in my estate.

FACT: Although a reverse mortgage does eat up equity, if you are currently making a mortgage payment that you can’t afford, that is eating up equity from your estate by subtracting the mortgage payment from your income

and from your cash reserves.

MYTH #3: If I use up all my equity I will be forced to move from house before I die

FACT: You can never be forced to move out of the home even if the mortgage exceeds your equity and the lender will continue to lose money on your loan. That is one of the great advantages of this loan.

MYTH#4: I will use up all my equity and my heirs will be stuck with nothing.

Appreciation in a home has outrun the interest accrued in most communities in California, so in most case heirs do get equity at the end of the loan.

Reverse Mortgages have received bad press mostly from the uninformed. The “uniformed” are not usually from the fields that you would think. Accountants, real estate professionals and bankers have all been critics of reverse mortgages and for no reason that this writer can find. These professions should know better since mortgage instruments are part of their field. As a Reverse Mortgage professional, when I have run into professionals in other fields who are adamantly against these instruments, I have been shocked to find out that they know almost absolutely nothing about them or how they actually work. This article will clear up the pros and cons of this product.

Who Is a Candidate for a Reverse Mortgage and When is it an Option?

1. One who is 62 years or older. (55 or older with higher cost)

2. A reverse mortgage candidate is one, primarily, who wants to stay in their home but can’t afford to live there without using credit cards or creating more debt to make ends meet.

3. One who needs a large some of money for some capital improvements for their home but can’t pay it back.

4. One who is seriously depleting their reserves to pay their bills and will use up all of their reserves paying their bills before they die.

5. One who has a lot of debt, but even if they consolidated all of their bills, they still could not afford to make their normal mortgage payment.

6. One who is selling their home but does not have the buying power to get the home they want. In these cases, the senior has to put only 50% down on the new home and make no payments on the mortgage for the rest of their lives and/or bank the rest of their sale proceeds for reserves. Reverse mortgage purchases ALWAYS involve closing costs, unlike refinances.

7. Wants large sums of money available for future purchases they can’t afford to pay back.

8. One who needs more cash flow every month in the form of a monthly check from their equity.

9. One who needs a loan but either their credit or income will not allow then to qualify for a regular loan.

Myth: You Were Told You Couldn’t Afford to Sell Your House and Move because of your credit and income: (Yes you can in many cases)

So, you looked into selling, or downsizing, and you were told you were not a candidate to sell and buy a new home because:

1. You didn’t have enough equity to buy a new home that you could afford.

2. You couldn’t qualify for a decent mortgage due to lack of income to qualify for a new mortgage.

3. You have poor credit and can’t qualify for a new loan.

Not true. The first assumption (No. 1) is based upon the idea that one doesn’t want a mortgage on their next house and would prefer to purchase one free and clear as most seniors on a fixed income would because they don’t want to make payments. For example, let’s just say you have a $250,000 first mortgage on your present home and you wanted to buy a $500,000 home, so you would have to take a $250,000 mortgage to do so. If one took a reverse mortgage instead, they could put $250,000 down and then borrow the other $250,000 AND NOT HAVE TO MAKE ANY PAYMENTS ON IT FOR THE REST OF THEIR LIVES, regardless of credit or and income qualifying. There is still a minimum income required for the loan, but not for qualifying for the loan. It is a minimum requirement for you to live on.

Using a reverse mortgage gives you 50% more buying power because you don’t have to make a payment on the mortgage you have to get to buy your new house. In other words, you could qualify for a $500,000 home and only have to put $250,000 down and not have to make any payments on the $250,000 mortgage during your lifetime.

Myth: Reverse Mortgages Are Expensive—NOT!

There Are Always MAJOR Closing Costs Associated with ALL Reverse Mortgage—WRONG!

This is not true. There are a couple of ways to avoid all the closing costs, except for the upfront mortgage insurance premium. ALL the costs can be paid under the right program, which is only true for refinances though. Purchase transactions can be expensive.

Reverse Mortgage Product That is the Best for Maximizing Your Equity and Limiting Costs

This next section is almost never covered in any literature that you will be sent by any company but is the most important information you should have in shopping for a reverse mortgage.

The important thing to understand here, is that a reverse mortgage should not be shopped the same way that one would shop for a regular mortgage. The reason is that a reverse mortgage has different goals than a reverse mortgage, and because the balance is going backwards, it works the OPPOSITE way a regular mortgage works, therefore the product you want is also the opposite of what you think it should be. Please see below example.

Reverse Mortgage Example and Quote to Guide You to Get the Most Money and Pay the Least Costs

With this explanation, please refer to EXHHIBIT 1 which is the next page on this pamphlet.

Suppose you are applying for a reverse mortgage, and you have a current mortgage of say $150,000. You would like to pay off this mortgage and have no other needs for extra money except for mortgage payment relief.

In this situation, many would be seeking, (and lenders would be quoting) a fixed rate quote WHICH WOULD BE THE WRONG CHOICE if you were looking to have borrowing equity available after you close or to pay the least in closing costs. The biggest expense in a reverse mortgage is the mortgage insurance premium, but this expense is also what protects you from being kicked out of the property if your equity runs out and for the lender to pay the mortgage payment every month from negative equity which means you would actually be making money on this loan if that happened. Also, the mortgage insurance keeps the mortgage from putting a burden on the estate, so that the heirs don’t have pressure to pay off the loan. Without the mortgage insurance premium, no lender would put themselves into this situation or allow such benefits.

On exhibit 1, you will notice there are 3 choices. The first 2 choices are variable rates, and the 3rd choice is a fixed rate at 5.56%. The first choice, the variable rate at 5.42% is actually the best product of the 3 because it has the lowest closing costs an allows for the most equity available. So, am I saying that the variable rate is better than the fixed rate? Yes, I am. Why?

Please also refer to EXHIBIT 2 for line of credit information.

Three Reasons Why the Variable Rate is Way Better than the Fixed Rate.

1. MAXIMUM EQUITY AVAILABLE: The fixed rate does not offer a line of credit available to the borrower after the first year* therefore greatly limiting access to maximum equity in the property. You receive $86,511 more money than the fixed rate available to you in a line of credit after the first year.

2. LOWEST CLOSING COSTS: The first variable rate offers the least amount of closing costs off all loans, beating the fixed rate costs and variable rate #2 by $8,000.

3. APPRECIATING LINE OF CREDIT AVAILABILTIY (EXHIBIT 2): The line of credit of $117,399 (of which $30,888 is available in the first year) grows (appreciates) at a little over 4% a year which if not used would be worth $347,180 by year 20.

In other words, after the first year the line of credit of $117,399 would be worth $123,950 ($117,399 x 4.22% = $4958 + $117,399 = $123,950) The schedule says 4% appreciation, but the schedule shows a 4.22% growth rate.

For Northern California Clients Call

Ralph Migliozzi, Reverse Mortgage Expert at 530-477-9177

For Southern California Clients Call

Carol Thomas, Reverse Mortgage Expert at 530-389-9177

*Lines of credit are never offered on fixed rate loans for a very important reason. Since the rate is fixed, if a borrower decides to borrow the money later, and rates have gone up, there is no way to change the rate, because it is fixed. But on a variable rate, the lender can charge a different rate each time the line is accessed. That is why you can’t get an HELOC or an equity line of credit unless it is a variable rate.

Ralph Migliozzi

Broker Originator

Serving Northern California

NMLS 282851 DRE #01002038

(p) 530-330-3073

rc-advantage.com

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