California Reverse Mortgages by your Sacramento Reverse Mortgage Provider

Don’t Get Tripped Up By Greedy Salespeople

by Jeffrey L. Bangerter
September 19th 2008

I was just reading an old article on where they try to make the point that you should not get a reverse mortgage and then put the money into an annuity or use it to buy Long-Term Care Insurance.

I like the idea behind the article but they really had to stretch to make the point and then they missed the mark on some of the issues, in my opinion.

They use a calculation showing the reverse mortgage interest at 7% and an annuity paying 5% and then graph it out to show that you will lose money, no kidding paying 7% and only earning 5% is a bad idea?

Do you think we really need them to write an article for us to figure that out?

Here is the real reason you should not do it: If the interest rate on the reverse mortgage loan is 5% and the annuity is paying 5% then it is still a bad deal and here is why.

The money you take out is having interest charged against your equity so even though you are not paying it, it is still a cost that your estate is going to incur.

If you had left that money in the credit line of the reverse mortgage (equity still in your home) then it is growing at a rate that is the same as what the lender charges including MIP.

So in our 5% example you would lose 5% growth on the equity and be charged 5% on the debt for a total lost opportunity of 10% in other words the annuity (or any other investment) has to beat 10% in order for it to be better than leaving the money in the credit line.

OK my answer is more complicated but also more correct, anyone can show you paying more and earning less and act like they are educating you, but let’s deal with reality.

As for the Long-Term Care Insurance issue I think you have to ask yourself if it would make sense to use your homes equity to be able to pay someone to help you stay in your home longer if you need assistance.

Medicaid and other government programs are not very good at providing benefits to seniors that want to stay in their home but need some form of care.

My personal opinion is that I would use all of my homes equity to stay out of a care facility, I have been there to meet with clients and I don’t want to ever have to live in one.

I wonder if the people that write articles telling you not to protect yourself have ever been in one.

One last issue I have with this article is that they over state the cost of the reverse mortgage and then say if you really need the money maybe you should sell your home, and then what?

Rent, move in with the kids, live on the street, they just assume that you will be fine after you sell your home, maybe they think you should put the money in the stock market and hope it goes up.

I don’t know but that is the point, they did not offer a better solution they just cast doubt on a good solution.

From experience I can tell you the reverse mortgage is helping seniors stay in their homes and live better lives, I have helped them and I would be honored to assist you.

Use the form on the right or call and let’s see if the reverse mortgage is a tool you should use…