When you first hear of a reverse mortgage, it is easy to become confused by the jargon that lenders use. These loans are quite complex, and finding out whether they are the best option for you takes a bit of research. The first step, however, is simply to learn more about what these loans are and how they work.
A reverse mortgage is a loan that is generally intended for seniors who need to supplement their Social Security or retirement savings. The loan is offered only to seniors who own their home outright or who have a low enough mortgage balance to repay their mortgage using the funds from the loan. The loan is paid as a line of credit, ensuring that the borrower can take funds as needed or it can be paid with scheduled payments as long as the funds remain available. The funds borrowed can never exceed the equity of your home.
Repayment of your reverse mortgage is not due until none of the borrowers are the primary occupants of the house. This means that even if you live in the home after funds are exhausted, your home cannot be taken away to repay the loan. The loan will simply become due at such time as none of the borrowers reside in the home.
When the loan becomes due, either you or your estate will be responsible for repaying the loan and any associated fees. If this is not possible, the home will be repossessed. It is important to understand this fact when considering such a loan.
A reverse mortgage can be an excellent way to supplement the cost of your retirement, provided that you understand all of the terms of the loan. As with any loan, it is very important to understand all terms fully and to ensure that you borrow from a reputable lender. When you understand how a reverse mortgage really works, it is easier to understand if it is the right loan for you.

This weekend’s edition of the Wall Street Journal includes a cover story about many 60+ seniors looking for jobs. I have written about this a couple times in my blogs, and “seniors working longer/more” is a story that is covered by the media weekly. What is different about this story is that there is an acknowledgment that while maybe some senors continue to work because they find it rewarding or fun, many seniors are looking for a job out of necessity.

If you, a friend or a loved one is feeling the impact of the stock and housing market drops – share the good news with them. Investors are still making offers on life insurance policies for seniors 65 and older. Don’t expect your life insurance agent or even your financial advisor to recommend – both are discouraged from recommending due to their relationships with the major insurance carriers. Use our calculator for a free life settlement estimate and print it out and bring to your fee-based financial planner.

Selling your unwanted or unneeded life insurance for 20-30% of the face value or 5-10x the cash surrender value sounds great and simple enough, but what should be considered in determining if you actually need your life insurance?

Every situation is different, and selling your life insurance in a life settlement is not a small financial decision, so working with an advisor is recommended. There are, however, some common considerations:

Do you still need some sort of life insurance protection? In general, your are insurable up to your net worth. So if you have a $500k policy and a net worth of $1m, you are eligible for only another $500k in coverage.

Receiving a large cash settlement may interfere with public assistance benefits such as food stamps or Medicaid.

If you are comfortable with the above, selling your policy may be a financially sound move for you and your loved ones.

We felt it was worth spending some blog time to answer this common question – and it can be answered with one word:  Diversification.

When an investor is offering to purchase a policy, they are adding it to their portfolio of existing policies.  The more they own – the more likely they are to have a portfolio that behaves on average as they would expect.  If they plan on paying premiums for policies for 120 months, and they buy one policy – what happens if that policy ends up requiring premium payments for 360 months or more?  The investor loses big time.  But when the investor buy pools of policies, or continues to add policies to the portfolio – the individual performance of 1 policy will not affect the investment as significantly.

To put it in perspective, to have a diversified portfolio of insurance policies, it is estimated institutional investors need 200+ policies.  By holding on to a single under-performing or unwanted policy – the policyholder or beneficiaries are essentially deciding at that point to invest without diversification.

For other answers to common questions – check out our life settlement FAQs page.

There’s more.

Add in a onetime fee for 3rd party closing costs estimated at $2,200 for our example, and before you receive a dime – fees are already $16,630!

In addition, lenders charge a monthly service fee, called the service fee set-aside – usually $20-$35 monthly and a monthly interest charge of maybe .5% per month.  These can add on thousands to the final cost of the loan.

Most fees are deducted from the amount you borrow so they significantly reduce the cash you receive.

In fact – 63% of seniors who shopped for a reverse mortgage – decided against it because they knew they had other, better options.

The primary goal of the Life Settlement Network is to help seniors find the value in an asset they may not have known had any value.  Unwanted or unneeded life insurance can provide a terrific cash infusion and is a vastly superior option to a reverse mortgage in most cases.