What happens after 30 years of having the Reverse Mortgage?

By
Mortgage and Lending with PS Mortgage Lending 305-791-4874 or 888-845-6630 365768

Someone asked me to explain what happens to a homeowner who takes out a Reverse Mortgage at 62 when they are 90.  Someone who starts the Reverse Mortgage at the youngest age of 62 after 20 to 30 years will possibly owe more than the value.  The current interest rate of 4.99% plus MIP of 1.25% equals 6.24%, and average appreciate in a normal market is 4 to 5%, so we will say 4.5%.  This is why they are only able to borrow 55-70% of the value based on their age, as opposed to 80% or 90%. 

I show my clients that if they were to take whatever their mortgage payment was before the Reverse Mortgage or would be if they were to take out a new Traditional Mortgage for the same amount.  Then if they were to invest it in the historical average for a CD (which is a 5% average in the US over the last 15 years) during that same time, they will end up with close to the same amount of debt.  Disclaimer: I am not recommending that anyone withdraw money from their home via the Reverse Mortgage and invest it.  I am simply comparing apples to apples in an example.

THIS OPTION IS BETTER FOR THE BORROWER EVEN THOUGH THE CD RATE IS LOWER THAN THE INTEREST ACCRUED ON THE REVERSE MORTGAGE!  WHY?

Let’s fast forward to when this 62 year old turns 90.  If the mortgage debt is 500k and the value is 400k, and let’s assume they have saved the payments and gained interest on their savings totaling 450k.  If they pass away and leave the home to the heirs, the heirs DO NOT have to pay the 100k loss as that difference is insured with FHA’s Mortgage Insurance Premium (MIP). 

So the heirs will have 450k cash and won’t have to worry about selling and paying any realtor fees or closing costs, etc. for selling that property at 400k.

Which would you rather have?

450k cash OR a property to sell valued at 400k

I’ll take the cash!  This doesn’t work out this way for every situation, but it’s a good comparison for those who want to leave money to their heirs, but also want the security of not having to make payments on the mortgage.

There are a lot of benefits to the Reverse Mortgage.  I have my grandparents on it, and my aunt, uncle, and I are the heirs.  We understand that they are using THEIR money now to live better, and what ever is left in the end, IF ANY, is ours.

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Information and content in this blog is original to Phil Stevenson

Please click the "SUBSCRIBE TO MY BLOG" button on the right, and receive more Traditional and Reverse Mortgage information in Florida and other parts of the US & Puerto Rico.

 

Phil Stevenson

PS Financial Services

Owner and Principal Mortgage Originator

Certified Reverse Mortgage Professional (CRMP)

LO #365768

NMLS #968090

Cell: 888.845.6630

Miami Mortgages & Florida Mortgages

Copyright © 2013 by Phil Stevenson & PS Financial Services, LLC

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Jean-Paul Peron 11/06/2010 07:33 AM
Topic:
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Location:
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Tags:
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Rainmaker
5,770,099
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

Good information. Many seniors do not understand that a reverse mortgage may be used to purchase a more suitable primary residence.

 Blooming for seniors in Maryland.

Oct 23, 2010 04:16 AM #1
Rainer
209,593
Dennis Duvernay Broker/Owner
Hillview Realty - Northbridge, MA

It certainly can be very useful...you just need to do your homework and work with someone you trust.....sit down and learn all the facts...thanks for the info...

Oct 23, 2010 04:21 AM #2
Rainer
432,184
Margaret C. Taylor
Century 21 New Millennium MD - Mechanicsville, MD
St Marys/Calvert/Charles MD Real Estate Agent

Thanks for the explanation.  I had never seen a comparison like this.  I will have to read it again though to be sure I undersand.  Deserves being suggested.  Margaret C.

Nov 06, 2010 07:51 AM #3
Rainer
390,315
Jean-Paul Peron
The Outer Banks Real Estate Copmpany - Corolla, NC
Carova Beach - Living & Working in 4-Wheel Drive

This was a Great Post!

I feel a re-blog coming.

Nov 06, 2010 08:09 AM #4
Rainmaker
151,232
Morgan Mason
The Outer Banks Real Estate Company LLC - Southern Shores, NC
Outer Banks Beach Houses for Sale

Great information!  In special cases, this could be the best investment advice ever.  Thank you for your blog, Phil.

Nov 07, 2010 02:45 AM #5
Rainmaker
271,377
Phil Stevenson, CRMP
PS Mortgage Lending 305-791-4874 or 888-845-6630 - Miami, FL
"Mortgage Nerd" in Miami, Florida and Texas

Thank you all for your comments and compliments.  I hope this helps you and your clients in the future.

Nov 10, 2010 07:01 AM #6
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Rainmaker
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Phil Stevenson, CRMP

"Mortgage Nerd" in Miami, Florida and Texas
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