Reverse Mortgage Guide

Several months ago USA Today reported that seniors are using reverse mortgage financing to bail out of untenable toxic loans.

“A ‘use we had not anticipated is that many homeowners also use all of the reverse mortgage proceeds that they are eligible to borrow at closing to pay off any existing conventional or “forward” mortgage,’ says Bronwyn Belling, director of the Reverse Mortgage Education Project for the AARP Foundation.”

David Peskin, CEO of the Senior Lending Network, said, according to the paper, that “about half of his customers use reverse mortgages to help retire an existing mortgage.”

David Cesario, executive vice president of 1st Reverse Financial Services told the paper that “more-affluent retirees seeking jumbo reverse-mortgage products may not want to touch their stock investments to finance current spending. They can effectively use reverse mortgages to cover conventional mortgage payments of a second house without affecting cash flow.”

In other words, if you reach age 62 you can transfer debt from a forward mortgage that requires monthly payments to a reverse mortgage that does not. This is surely good for personal cashflow, but borrowers should be aware that a $200,000 mortgage is a $200,000 debt while a $200,000 reverse mortgage is a negative amortization mortgage, a loan where debt will increase over time to far more than the original loan amount.

Given how much the foreclosure meltdown has worsened, you have to wonder if the percentage offered by Mr. Peskin has increased significantly.

For the complete story, see: Seniors tap equity with reverse mortgages

This entry was posted on Wednesday, November 14th, 2007 at 2:38 pm and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.