The Top 5 Reverse Mortgage Mistakes

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1 The Top 5 Reverse Mortgage Mistakes 2N8020.jpf

2 Thanks for taking the time to review this report. We know you will find this information helpful and informative. Our goal is to help you take this information and help you to make an informed decision and determine the direction that works best for you. If you would like more information, please visit our website at mortgages.com. There, you will find additional resources and videos that will help you determine if a reverse mortgage is right for you. Or, if you are interested in a complimentary one-on-one consultation, please feel free to contact me at scott@scott-larson.com or (408)

3 Mistake #1 - Thinking a reverse mortgage is the only option. When you are considering a reverse mortgage, the first mistake people make is to compare a reverse mortgage to a regular mortgage. This is where complications arise. A forward (normal) mortgage is designed to lend against future cash flow (repaying the loan), where a reverse mortgage is strictly lending against the value of the home. In fact, a reverse mortgage should be more properly compared against the selling of the home. Selling the home becomes the correct option when you need to release the greatest amount of equity. Releasing equity is the purpose of both the reverse mortgage and a sale of the home. So, the first decision is, do you want to stay in the home? Then you may consider if staying in the home will be possible for the long term. If not, or if the financial needs are great, then selling the home may be the more appropriate decision. To learn more please watch the video at

4 Mistake #2 - Automatically choosing the fixed rate instead of carefully evaluating all your options. The fixed rate reverse mortgage is a wonderful product, but it is the most expensive loan option. This is because you are making the lender to take on the risk if interest rates go up. This might be a good bet (based on the current economic situation) but you pay for it in two ways. First, there is an interest rate premium of up to 2.75% and second because of the amount of interest that you will pay. With the fixed rate reverse mortgage, the entire amount available is given to you as a lump sum. This means you begin accumulating interest charges on the whole amount immediately. These higher charges may offset by a couple of factors. First, with the fixed rate, you typically have more money available, so this may be a more important factor. Because rates do increase, you are protected from a high lifetime cap (near 12%) found on the adjustable rate reverse mortgage. The question becomes When should I consider an adjustable instead? If you don t need much money at this time, your interest charges could be much lower with the adjustable mortgage. If you don t want to pay for the funds until you use them, you can choose the line of credit option. If you would prefer a recurring monthly payment this option is only available on the adjustable reverse mortgage. If you think interest rates will stay at or below the rate of the fixed rate mortgage. These are all situations where your total cost could be lower with an adjustable rate reverse mortgage. Should you take one? All situations are different but should you consider it.

5 The Top 5 Reverse Mortgage Mistakes Mistake #3 - Paying too much attention to price. Paying too much attention to price that seems counterintuitive, of course you want to pay attention to price. As with any complicated product you need to make sure you are getting a good value for your money. Working with a professional to make proper decisions will pay off far better than scrimping to save a few pennies. For example, as stated in Mistake #2, the total cost of a fixed rate reverse mortgage can be substantially higher than an adjustable reverse mortgage, at least in the short term. Any savings that may be generated on closing costs would be quickly offset by higher interest costs. Similarly, if living in the home will be difficult and selling will be inevitable, you will be incurring extra costs by taking a reverse mortgage, in addition to the cost of selling your home. Moving is almost always more difficult as you age, for both physical and emotional reasons. Another area where advise could be helpful is in the estate planning arena. If one of your goals is to retain the home an asset for heirs, perhaps a single premium life policy would be appropriate to replace the funds that are withdrawn by a reverse mortgage. Failing to consider that option would be very costly in the long run. Then there is the trust factor. Most people in this industry are skilled professionals that want to help the seniors that they work with, but there are a few that are more interested in commission than seniors. These lenders tend to be found in the banks that have production quotas. You should never be pressured into a reverse mortgage!

6 Mistake #4 - Looking for a reverse for a short term solution. A reverse mortgage is not a short term solution. Period. Reverse mortgages are too expensive to be a sensible short term solution. This is clearly shown on the TALC (Total Annualized Loan Cost) disclosure which compares your costs over time. The longer you have a reverse mortgage, the longer the costs are amortized, and the lower your total cost will be. People may be tempted to go ahead with a reverse mortgage because of the benefits, such as, no payments and no credit qualifying. If the projected time horizon is within a year or two, a reverse mortgage almost never makes sense. There are exceptions of course. Consider someone who needs funds for medical treatments. A spouse who is facing the choice of dying with dignity in the home or having to be in a nursing home. A temporary need for funds that there is no other way of obtaining. These situations should be few and far between, and often there are other ways of addressing these needs without incurring the cost of a reverse mortgage.

7 Mistake #5 - A trust is not enough (by itself) for a reverse mortgage. Trusts are tricky things. And let me start by saying, I am not an attorney, and I don t play one on TV. For legal advice, please contact an attorney. What I do know is, while it is perfectly OK to vest a property in a trust for a reverse mortgage, you cannot use a trust to apply for a reverse mortgage. We often confront situation when a senior had developed some medical issue, such as dementia, stroke or Alzheimer s disease, and are unable to act for themselves. The successor trustee, often the child, has been operating using the powers granted in the trust, but the money is now gone and a reverse mortgage is being considered. Unfortunately, the power of the trust is not sufficient for this situation. HUD only allows three types of people to apply for a reverse mortgage, a person acting for themselves, a power of attorney, or a conservator. Due to a need to protect the senior, these regulations provide a higher standard of care or protection. This often causes a conflict since HUD updates their guidelines regularly to reflect the current state of the business and the law, many trusts were drafted years ago. To avoid this conflict please update your trusts, add a power of attorney and HIPPA form. However, if you are operating under an old trust, we will assist you in the process, along with your attorney, to get to a satisfactory solution with a reverse mortgage.

8 Bonus Mistake #1 - Not realizing there are other senior products that may help! The senior lending marketplace is changing constantly and we have seen the return of an appreciation sharing product that charges no interest and has no payments. Interested? Call me today! Bonus Mistake #2 - Not visiting the website or calling me for a free consultation. This is the easiest, low pressure way to get the information you need before you make a decision. Our goal is to help you make a decision that works for you, even if that decision is a not yet, or even a no. We would rather have a smart no, than a reluctant yes! Thank you for taking time to review this report I hope it helped fill in some of the missing pieces of your puzzle. For more information, please contact me at (408) or scott@scott-larson.com NMLS