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Monday, February 2, 2009

The Reverse Mortgage and Worst Case Scenario

By Matt Vanrock

Even though people calling me know I make money from them using me to get a reverse mortgage they still want me to tell them they are making the right decision.

You may not believe this but I always say it is not a great choice for everyone. Its situational and some borrowers should simply walk away.

The reason most are calling me is that money is extremely tight. There are the exceptions who are looking for investment money but most need the money.

The typical MO of my customer is a fixed income through SS or retirement. A few are still working but looking to be done with that.

When they ask me their question Im primarily focused on their long term equity position in their homes. They may need that equity if a major financial issue presents itself.

Every day of our lives we roll the dice. Sometimes it comes up snake eyes and we must be there to answer the call.

Along these lines I like to see prospective borrowers use the mortgage intelligently to increase their disposable income and to use that income in the proper places.

The reason being is the house is going to be the biggest store of cash for any of these individuals. If that is floundered away they could be in a real bind later on when something big comes along.

For a very conservative perspective one should use the reverse mortgage when it is absolutely needed. If a mortgage exists maybe it is best to wait to refinance it with a reverse mortgage.

If there is no mortgage I like to see folks use the line of credit option and use their proceeds sparingly. By using proceeds this way interest accrues minimally against the equity of the home.

A real benefit of this LOC is it actually grows over time and benefits the borrowers. Any unused money in the LOC gains interest for the borrowers favor.

The whole point here is to be conservative with your biggest asset. If you need to take a trip or use a bit for fun money, do so. Life is for living, but use the rest frugally.

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