I tell him and he’s ready to go. Now his plan is take the entire amount, I believe about $134,000, put it in the bank and live off of it while its gaining interest with his bank.

I say, “slow down there partner, I don’t think this is your best choice”. He has a very typical reverse mortgage need. That is the need for additional funds to cover life expenses.

His home is owned free and clear. All he needs is an occasional draw of some kind to get him through. He is not extravagant in any way.

He has four different cash out options to receive money from his reverse mortgage. The one he wanted was probably the worst option for his particular situation.

The 4 options are as follows:

Number one is for the mortgage company to deposit a large glut of money right into the borrower’s bank account. The borrower can use this lump sum option to pull out any amount at or less than the mortgage companie’s alottment.

The second option is for the lender to send monthly draws to the borrower. The borrower can choose to receive money until death, in which case the lender sets the amount the borrower will receive. Or the borrower can set an amount to be received every month.

A popular option is to use a reverse mortgage line of credit. In this instance the mortgage company alots a loan amount. The borrower simply leaves the alotment in the line of credit until it’s needed. The benefit is no interest accues against the home while the money is in the LOC.

Another important point to note about the line of credit is money sitting in the line of credit is accruing interest for the borrower’s favor thus increasing borrowing power over time.

The last option is a combination of the forementioned options.

Going back to my lump sum borrower it is pretty clear he is much better off without the lump sum as he doesn’t need all that money, and interest would be eating away at his equity using that choice. He was better off with some for of monthly draw combined with a line of credit.

It’s case by case which you choose to use..

Learn the 4 choices and nineteen other giant reverse mortgage in Texas to get an excellent Texas reverse mortgage report covering the cash out options and other vital items.

Formerly I could give a customer hard numbers immediately. In other words I could tell them which interest rate and how much money they qualify to receive right off the bat.

Additionally, my numbers would be locked in for up to one hundred twenty days.

This is no longer the case. Today reverse mortgage feel more like forward mortgages in that interest rate pricing is done with varying lock periods. And pricing can change day to day prior to locking rates.

Since most reverse mortgages take longer than the lock periods some customers will get burned. Quite a few senior borrowers are banking on the reverse mortgage to come in and pay off their forward mortgage.

These folks need extra money and eliminating that payment associated with the mortgage is just the ticket.

Here is where they can get in trouble. Often the loan amount, offered by a reverse mortgage lender, is just enough to pay off the mortgage. A big factor determining how much the borrower gets is the interest rate.

The amount of money a borrower receives is inversely associated with the interest rate. For instance, when rates are low, the borrower gets more money. Conversely when they go up, the borrower gets less.

Where our group of customers may be in trouble is they will call in for a quote. Rates will be good that day and the lender will verbally green light the transaction.

Two weeks later, after the market sends the rate up a point or so, when they go to lock they may no longer be able to pay that mortgage off.

The borrower has the choice now of paying the difference between what the reverse mortgage company will lend, now much less than before, and his forward mortgage in cash.

This is not exactly a great pricing change for the average reverse mortgage customer.

I believe this new pricing model, though negative in my example, should drum out a good number of the poor loan officers in this industry.

The reverse mortgage loan officers with knowledge and experience would understand how to properly present this to customers. My guess is they will win more customers.

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