Tom MacDonald - Reverse Mortgage Consultant






       Reverse Mortgage Consultant

      Tom MacDonald


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Make Payments On Your Reverse Mortgage??

Most people don't know you are allowed to make payments - regular, irregular, any amount and at any time.  Why would anyone with a reverse mortgage make payments?

First, I'll be talking mainly about the Adjustable Rate choice.  With the fixed rate choice, there is some value in making a payment by reducing the balance and eating up less equity.  But that is all.  You'll see there are many benefits to do this with the Adjustable rate.

Now, take a quick look at my article titled $1,000,000.  That will give you a good visual of one aspect of what I'll talk about.

Reason's to make payments on your Reverse Mortgage:

  • The Line of Credit (LOC) with an Adjustable Rate Reverse Mortgage (the LOC is not available with the fixed rate) has a growth factor.  It grows at about the same interest rate as the borrower is being charged.  If the borrower makes a payment, the LOC increases by the amount of the payment providing more dollars to grow.
  • Ease of access compared to other choices.  If you took the money you might have used as a pay down and put it in a CD, you might have early withdrawal penalties.  If you paid those excess funds into an investment, you might need the funds when your investment was down.
  • Prepare for interest rate increases.  If interest rates increase, the loan balance will grow faster (not necessarily good).  However, having the LOC grow faster is good.
  • Large amounts of money could be available when needed.   As you saw in the $1,000,000 article, there could be very large amounts of money available in the LOC over time, depending on how much money is growing.  Later in life, large amounts may be needed.  For instance, currently in home care can run as much as  $10,000/month.  Imagine what it might be many years from now.
  • You can miss payments.  With a regular mortgage, you had better not miss a payment.  It could harm your credit rating and possibly the ability to stay in your home.  If, instead of having a regular mortgage, you have a Reverse Mortgage, you could still make monthly payments just as you are doing to keep the balance from getting bigger and allowing the LOC to grow.  Then if something unplanned happened, you could skip a payment or two or as many as needed.  Or maybe it would just be handy to skip a payment or two during the holiday season.
  • Prepare against a possible repeat of home value declines.  Once the Reverse Mortgage is put in place, the system does not care what the value of your house is until the loan becomes due and payable (sell, move, or pass away).  Even if home values go down, the LOC keeps growing.
  • More beneficial and secure than an Equity Line of Credit.  In addition to the growth factor (Equity Line limits don't automatically increase) banks have been know to decrease the limit, limit additional access or even close down the Equity Line of Credit.  That can't happen with a HECM Reverse Mortgage (although there are some usage limits in the first year).

So, to be clear, for every $1,000 paid down against the balance of a HECM Adjustable Reverse Mortgage, the Line of Credit portion goes up by the same $1,000.