I love talking with my clients, prospects and closed clients alike. They are my inspiration for most of the posts on my blog.
Yesterday, I was speaking with Jerry, a client who currently has a reverse mortgage. He was interested in refinancing out of his reverse mortgage into a 30 year fixed rate "forward" mortgage in order to maintain plenty of equity in his home to leave to his children. He has a great income, excellent credit and plenty of equity and should easily qualify for a conventional loan.
"Why don't you just make payments on the reverse mortgage?" I asked.
"Can you do that?"
"You sure can!" I replied. "And let me tell you why I think that would be the best idea for you." I went on to explain the following to him.
The current rate on your adjustable reverse is at a 1.25% margin over the One Month T-Bill (A HECM CMT 125 in reverse speak.) One of the lowest margins ever offered on the HECM.
- By making payments on the reverse mortgage you will not only eliminate or slow down the current principal balance increases, you increase the available line of credit. This feature is only available on the FHA Adjustable Rate Reverse product.
- You avoid the cost of refinancing.
- Payments on a 30 year fixed are mostly interest during the first half of the loan life, so basically the bank is now making @5.5% on the loan instead of the current less than 2%. This reduces the amount of principal reduction you would see from the same monthly payment.
- In the event the interest does adjust upwards,( and yes, everyone agrees that is bound to happen) you will have lowered your principal balance more than if you had refinanced AND.... Ready??? Here comes the best part! The growth feature on your line of credit is directly tied to the interest rate being paid on your loan (plus .5%)! That means that should you need to access equity in the future, due to an emergency of any kind, you will have more funds available to you when you need it.
- There is never a prepayment penalty on n FHA Reverse Mortgage, and yes, you can refinance at anytime, but carefully weigh the benefits of other options before you spend your hard earned equity.
Needless, to say, although I talked Jerry out of what would be an easy refinance for one of my forward team mates, I helped him to accomplish his goal of reducing his debt in order to leave more for his children AND be prepared for whatever the future may bring.
As always, I love to hear your thoughts, comments and especially differing points of view. Please let me know what you think.
By Deborah Nance
Your Local Southern California Reverse Mortgage Professional
Click the Learn More Button below to email me a question.
iReverse Home Loans, LLC, NMLS#810502 originates reverse mortgages in Alabama, Alaska, Arizona (MB-0919584), California, Colorado, Connecticut, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon (ML-5378), Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont (1164-MB), Virginia, Washington and Wisconsin.
Important Information: Reverse Mortgages are neither "endorsed" nor "approved" by the Federal Government. The FHA (Federal Housing Administration) provides certain insurance benefits for lenders and borrowers in connection with the lender’s HECM loans; the FHA does not make or originate loans. The owner(s) retain title to the property that is the subject of the reverse mortgage until the person sells or transfers the property and is therefore responsible for paying property taxes, insurance, maintenance and related taxes. Failing to pay these amounts or failure to maintain the condition of your property may cause the reverse mortgage loan to become due immediately. A reverse mortgage is a complex loan secured by your home. Whether such mortgage makes sense for you depends on your financial situation and needs. For these reasons, we strongly recommend that you consult with a qualified independent housing counselor, family members and other trusted advisers before making this decision. This website is not from HUD or FHA and was not approved by HUD or any government agency.