Distressed homeowners may have overlooked the ultimate pick-a-pay loan.

Older homeowners who find themselves in financial distress are likely overlooking the ultimate pick-a-pay loan that’s hiding in plain sight. Pick-a-pay mortgages or option ARM loans were the rage in the years leading up to the housing crash and economic crisis of 2008. These adjustable-rate mortgages offered homeowners the option to make a minimum payment that didn’t even cover that month’s accumulated interest, an interest-only payment, or a fully-amortized payment that covered both interest and principal. The trick was making only the minimum payment would only last 12 to 60 months at which time the borrower experiences payment shock with payments that may be 63% higher than what a regular mortgage payment would have been.

Another trigger was if the negative amortization or growing loan balance reached 110 or 125 percent of the loan’s starting balance larger payments would be required. Today the seven most-popular mortgages are fixed-rate or conventional loans, adjustable-rate mortgages, interest-only mortgages, jumbo loans, FHA mortgages, VA loans, and USDA.

The good news is the majority of mortgages held in the U.S. are fixed-rate loans. This substantially reduces the likelihood of a wave of defaults and foreclosures. However, the bad news is many older homeowners have been pushed into a twisted version of a pick-a-pay. They must pick which bills to pay in order to keep their mortgage current or risk potential foreclosure.

If there’s one thing consumers like it’s choice. And that’s exactly what a…

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reverse mortgage can offer. Too often we can become fixated on using the reverse mortgage to eliminate required monthly principal and interest payments. That may work for most but are we missing the opportunity for more sophisticated homeowners who may wish to pay down a portion of their reverse mortgage, or use the line of credit like a revolving loan such as a credit card or HELOC? In its company blog, All Reverse Mortage points out some of the advantages of making payments on a reverse mortgage. 1-if you’re unable to qualify for a traditional mortgage you may qualify for a reverse mortgage loan. 2- there’s no missed payment penalty for non-payment. You can let the loan balance grow or chip away at it.

In a 2020 interview on HECMWorld Martin Andelman put it this way. “You can invent your own balloon payment and pay every three years. The reality is because there’s no due date you can never be late. If 35-year-olds could get HECMs, it would be the only loan in the country.”

With the cost of nearly everything skyrocketing having the financial flexibility of managing one’s cash flow without the looming threat of a payment shock or penalties is invaluable. First, we must determine what it is that the homeowner is wishing to accomplish. Perhaps the flexibility of the reverse mortgage may help them embrace the loan as more than just a mortgage but rather as a highly-versatile loan that offers several options.

We should remember that we are much more than ‘mortgage-payment-elimination’ specialists. We provide choices that may reduce risks for older homeowners. After all, isn’t nice to have options, even if you don’t need them?

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