California Reverse Mortgages by your Sacramento Reverse Mortgage Provider

Reverse Mortgages for Dummies Book Review

by Jeffrey L. Bangerter
November 07, 2008

Reverse Mortgage for Dummies

Reverse Mortgages for Dummies is a pretty good book although I think it goes into more detail than is necessary for most people.

This book like many of the books written about reverse mortgages is getting a little dated, but I am more concern about a couple of mistakes it has.

The first mistake may just be a type-o but on page 77 there are two points talking about the Mortgage Insurance Premium (MIP) paid on the Home Equity Conversion Mortgage (HECM) reverse mortgage, this is the FHA Insured loan, the book says the MIP is 2% of the home value or lending limit whichever is more and it is actually 2% of whichever of those is less.

This could be a major difference since the lending limit as of November 1, 2008 is $417,000 Nationwide and if your home is worth $200,000 your fee is $4,000 not $8,340!

A small mistake in the book but anyone doing the math might go into major shock unnecessarily.

The other issue I have seen in several books about the reverse mortgage loan and I hear other reverse mortgage lenders say it as well and that is the notion that you get interest on your credit line.

First let me explain that the credit line is money that is available to you from the reverse mortgage that you have not taken yet.

Well if you have not taken it yet, where is it?

Remember that you are borrowing money from a lender and your equity in your home is the collateral for that loan so the money you have not taken yet is still some of your equity in your home, right.

So the credit line is a calculation of what is still available of the equity in your home that the lender is willing to lend you.

If the lender does not have any of your money they are not going to pay you any interest either.

The better way to understand the growth on the credit line is to think about a credit card you may have, if you have a $10,000 limit and you pay your bill in a timely manner and the banks thinks you are a good customer, they may raise your credit limit to $15,000, if they do raise your limit did you earn any interest?

No, the bank is willing to lend you more money or in other words they are willing to let you go further into debt, but you did not earn interest.

The growth on the credit line is doing the same thing it is letting you borrow more money and go further into debt, which is not a bad thing, you just need to understand it.

The reason the reverse mortgage lender is willing to let the credit line grow is that they know you are going to get older and by the nature of the reverse mortgage that would entitle you to borrow more.

They also believe that your home is going to appreciate in value over time and so they are willing to factor that appreciation into the growth of the credit line.

The book is correct on how the growth rate is calculated; it is .5% greater than the current rate the lender is charging for the money you have taken.

The reason for this is FHA charges .5% on the outstanding loan balance annually for MIP in addition to the upfront 2% MIP that was financed in your loan.

So in reality the credit line growth is the same as your effective total rate being charged on the money you have taken.

The credit line growth on your reverse mortgage loan is really a great tool for you and you should not really worry about the interest rate you are being charged on the money you have taken since you are not paying it anyway.

In fact if you think about it you would be best off (not your heirs) if the interest rate was low when you took out the reverse mortgage so you could get the most access to funds to start the credit line and then to have interest rates go up so the growth rate would be high driving up the amount of money you have access to in the future.

So back to my review of the book Reverse Mortgages for Dummies, it is worth the read if you want to get a very good insight into the whole picture of the reverse mortgage with the exceptions I have pointed out.

If you don’t need to know all the details and just want to know how it will benefit you, give us a call at WSB Mortgage Services and we will be happy to give you all the facts over the phone, in the mail or via email.

We believe that with good and complete information you can make an intelligent choice about the reverse mortgage.