Why Shopping for a Reverse Mortgage can cost thousands in lost proceeds
Author: Tim Robbins The fact that lenders have to sell the mortgages to regain their funding availability and replenish their warehouse lines of funds.
Most people to do not understand that this is how lenders get the money to lend!
Now this does not mean that the servicing of the loan is sold they are two very different issues, when the lender sells the mortgage it is to regain funds they are packaged up in bulk and sold on Wall street as securities investments.
In most cases the lender retains the servicing of your loan, which means if you have any issues or you are looking to take money out of the credit line then you contact the same lender that did the Reverse Mortgage.
Why is it costing thousands of dollars to shop for a Reverse?
The track of people who contact a lender or are on the Internet shopping for a Reverse has risen, three to four times over the last year or two too record highs. The problem that we are seeing is that they are talking to lenders and working more and more to get them to compete for the loan and shopping to reduce the cost or interest rate. First the interest rate that is on a Reverse is set by the margin and index, which has nothing to do with the calculation of dollars available.
The amount of money that is available is determined by three factors!
- The appraised value of the home, note this cannot be determined by going to a website for value most of them if not all of them are off by as much as Twenty percent. Higher or lower they just look at averages and not market conditions and uniqueness of the property or location.
- The age of the youngest person in the home that will be on the mortgage, which must be at least 62 years old!
- The most important is the Ten Year averages of the index either the LIBOR or the CMT. The Libor is the London Interbank offer rate and the CMT is the Constant Maturity Treasury Note The Ten year average changes all of the time.
What many seniors don’t understand is that, what is quoted either over the phone or over the Internet is just an estimate and nothing more. Even closing cost can only be estimated up until the completed file has been reviewed to approved, at that time can the fees and interest be locked in for the person.
The problem is that a senior spends so much time trying to save a few dollars and miss the entire boat, In other words they sitting at the dock arguing over the ticket price and while doing the boat left the dock.
So how do I know this well it is really simple and the number don’t lie!
A senior who is let say age 70 first contacts a major Reverse Mortgage lender, and at the time the margin is 2.75 and the interest rate is 3.12 which is the initial rate charge on the loan. The ten year average is let’s say 6.26. Now remember this is the number that determines the amount of money. In addition, the closing cost for every thing including the MIP, Origination Fee and all other closing cost come out to $25,000.00, Remember this is and Estimate not factual.
Now this person has shopped for three weeks talking with four to five lenders trying to reduce the closing cost and pinning lender against lender to save on the only thing that the loan officer has control over and that is the origination fee. This by the way in this case is $5,950 of the $25,000.00!
The time has come to make a decision; based on the numbers that the lowest fee lender we will call him Discount lender he has reduced his fee down to $2,500.00, which is a internet loan officer with NO SERVICE during the process or at closing.
But the fee has been reduced by $3,450.00 Dollars (HUGE DISCOUNT). Now the application is completed, the counseling has been done and even the appraisal has come back and the value is what they thought it would be. Now comes the part that really opens up the eyes, the final calculations, based on all of the factors listed above.
It has been three weeks since this process has started remember the 10 year average the LIBOR was 5.50, but now three weeks later the margin is now 6.340.
So let’s look at the numbers with a little clarity!
Libor Margin, Initial Interest Rate, Ten Year Expected Rate, Principle Limit, FEE
300 3.33 6.26 $335,984 $5,950
300 3.313 6.340 $325,885 $2,500
In this estimate it shows that the Expected Rate has increase in just 8 days from the first quote date of 5/27/2009 the new rate is 6/04/2009
The saving on the origination fee is $3,450.00 the amount of money lost by the change in the expected rate increased and the amount of money lost has been $10,099.00 or a difference of $6,664.00 to the customer. Now would you really spend over six thousand dollars to save $3,500.00 the math just does not make sense. The cost of shopping over an over again without having all of the details worked out does not make you get more money.
Remember this one piece of advice, from a longtime professional who works with hundreds of people a month the Reverse Mortgage industry is working off of live pricing of loans the numbers you get from different lender or Loan officers can vary and the cost can vary, but in the end the pricing is what counts.
So how do you know who to get your loan with!
Use the person or company that is giving you the best in service, the person who answers your calls or supplies you with the information in a timely fashion. The person or company that will be with you all threw the process. Do they have the ability to make the process go smooth and get it done in a timely fashion? Is the person able to answer your questions and will they are there after you do the paperwork?
In other words go with your gut feelings and ask the right questions!
- Are you going to be available to me when I need questions answered?
- Are you going to provide me with the final numbers before closing?
- Are you going to attend my closing in case I have a question concerning the papers or number or will you at least be available at the time of closing?
The most important thing to remember is this! The person and or company you do business with are they spending the time to educate you and make sure that you are comfortable and do they answer all of your concerns. If not find one that does, someone that is a professional and cares about you!
Last final remark!
- The process of a Reverse Mortgage does not have to be strenuous or upsetting, you should feel comfortable in knowing that the professional is their and will be there during the process and after the closing in case you need answers or advice. If you want great service and commitment be willing to pay for it. Just like anything else in life you most always get what you pay for and professional services are not exception to the rule.
About the Author:I am a Reverse Mortgage Specialist I have spent over 20 years as a Real Estate broker and the last 10 years in the mortgage industry, and 5 of them providing Reverse Mortgages. My years as a professional, I have always felt that helping our seniors is helping the back bone of this country. Our seniors are the ones who made this country great and in the time of their lives that is so suppose to be their golden years it is in many cases painted black. I have dedicated my life to helping them achieve some sort of financial independence and help to enjoy the fruits of their labors.Tim Robbins Reverse Mortgage expert to contact me call 877-463-6546 ext 215 or go to http://www.bestmortgageplans.com
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