Michael Pinter

I wanted to report some first hand situations where Reverse Mortgages helped people.

1) Rescue from Foreclosure. There is literally no other situation that gives me more joy than saving someone from being evicted out of their home. For many seniors who have gotten seriously behind on their mortgage payments, a Reverse is their only salvation. This is a common occurence.

2) Pay off of consumer debt. Short of foreclosure, many seniors are getting way behind on their lines of credit and credit card debt. Wiping this out with a Reverse is also a life-changing experince.

3) Improvement to Cash-flow. See above. Obviously if their mortgage or consumer debt payments end, their cash-flow improves, but when they can get an additional $500 to $1,500 a month, tax-free and guaranteed, some people are practically in tears. I hear "this sounds too good to be true" quite often.

4) Purchase of Life Insurance. The second biggest knock on Reverse Mortgages (After the closing costs)is that they deplete the equity in the home. This is true in some cases. However, when proceeds are used to purchase a life-insurance policy, the depletion of equity is covered by the death benefit. The synergy between Reverse Mortgages and Insurance products is really in its infancy. I believe that if more Insurance Salespeople learned about the product, they could use it to help many more of their clients.

5) Purchase of Long-Term Care Insurance. Same as above, but even more important. Very few people have the LTC Insurance that they should. A Reverse Mortgage can be used to get them covered.

6) Home Improvement. Many Seniors' homes need work. Also, many need a change such as ramp or a chair lift for an immobilized owner or maybe a bedroom built on the ground floor. This can also be a life-changing experience, giving the homeowner the convenience that they never thought they could afford.

7) Helping their children or grandchildren. I have seen many seniors brought to tears when they realized that they would be able to rescue their child or grandchild out of a financial jam.

The bottom line is that equity sitting in a senior's home does nothing for them or their kids right now. If they have any kind of financial need, a Reverse Mortgage may be the key to opening a door that will change their lives for the better.

As I posted yesterday, one of the biggest complaints about a Reverse Mortgage is that the costs are too high. As I responded, there is just nothing in the world to compare a Reverse Mortgage to. Let me explain:

A Reverse Mortgage is unique in three ways.

The first is that it will provide income for as long as the borrower lives in the home. This means that the homeowner is guaranteed to receive this income, even if the value of their home has dropped, even if interest rates have risen and even if the homeowner has lived much longer than they were expected to. Besides an annuity (that requires an upfront contribution) there is nothing that can give someone the financial peace of mind to know that they can now pay for the things they need.

The second is that a Reverse Mortgage Line of Credit (LOC) is the only line of credit that grows and compounds. What this means is that if you take a Reverse Mortgage LOC for $100,000, the unused portion will grow to $105,000 after one year, $110,250 after two years, etc. This gives homeowners more equity for them to access, even if the value of their home has dropped. There is nothing around that will hedge against home value depreciation like this. This also provides a significant amount of peace of mind to someone who is worrying about declining home prices and their effect on them.

The third is that the Reverse Mortgage is a NON-RECOURSE loan. This means that no matter what happens (see above) the lender can only collect the value of the home. The security that this provides is immeasurable.

For these reasons, it is clear to me that the additional costs are absolutely WORTH IT. Can you really put a price on the peace of mind of knowing that you can stay in your home for as long as you live or for knowing that you can now afford the things you need?

The most common misconceptions about Reverse Mortgages:

1) The Lender "gets" the house. I hear this one every day, even from educated professionals. The truth is that the owner keeps the house and has a loan on it the same way they do for a regular mortgage. They stay on title and the lender NEVER takes ownership of the property.

2) The costs are too high. This is another common mistake. The costs are too high compared to what? The costs can be higher than for a forward mortgage (In NY, because there is no mortgage tax on Reverse mortgages, the costs may be very similar) BUT, you will have to make monthly payments on a forward mortgage AND if the value of the property drops, you will be on the hook for a forward mortgage AND you will not be getting a check every month with a forward mortgage. The bottom line is that YOU CANNOT COMPARE THE COSTS OF A REVERSE MORTGAGE TO ANYTHING because there is not anything like it. There is just nothing out there that can provide the happiness and financial peace of mind that a Reverse Mortgage can.

3) I (or my heirs) will owe more than the house is worth. All Reverse Mortgages are NON-RECOURSE LOANS. That means that the most the lender can get repaid is the value of the home. If the borrower lives to be 150 years old and owes one million dollars more than the home is worth (for example,) the lender will lose one million dollars. This is the risk that Reverse Lenders take. They don't take the risk that you won't make payments (like forward mortgage lenders make) but they risk that you will live a lot longer than they expect or that the value of your home will drop. Either way, NO ONE gets a bill once the loan is paid off.

4) The children will never allow it. At least 15% to 20% of the people who have contacted me about a Reverse Mortgage were the children of someone who needed it. Experience has shown that once the children are educated about how the Reverse Mortgage works (many have the above misconceptions) they are in favor of it. Think about a parent in need and ask yourself if the children would rather inherit the equity one day or use it to help their parents now.

That's it for today. Tune in tommorw.