The Lyons Den

Is the Equity Advantage Program the 2nd best alternative to a Reverse Mortgage after the Equity Key? Since the products release the minimum payment rate has increased from a quarter percent (.25%) to three eights of a percent (.375) interest only. This, along all the other changes going on in the mortgage industry, makes you wonder  if the product will even be around for much longer. Is there only a small window for someone who this product makes sense for?

Unlike a traditional adjustable option arm the Equity Advantage can be fixed for 5, 7, or 10 years. (Often called a hybrid, fixed-fixed, secure pay, safe pay, payment advantage etc.)

One could argue instead of paying the high closing costs of a reverse mortgage, you could pull cashout up to 60, 65 or 70% of the homes value, place that cash in a high-dividend paying whole life insurance policy or even a CD or savings account. Most would choose whole life because of all the benefits:

1. Guaranteed Death Benefit (Warren Buffet)
2. Guaranteed Cash Value base (Is that better than FDIC?)
3. Judgment/Creditor Proof (Liability Insurance)
4. Virtual will & trust by designating a beneficiary or beneficiaries
5. Virtual Medical insurance (w/ accelerated death benefit rider)
6. Virtual Disability Insurance (w/ waiver of premium rider)
7. Guaranteed level premiums (a great hedge against inflation)
8. Non-taxable dividends (return of premium)
9. Tax-Free growth (as long as paid-up-additions remain below the MEC level)
10. Velocity (Liquidity, Use and Control)
11. Tax-Free Income (if taken as a loan)
12. Collateral (You can assign policy and use as collateral)

…one dollar does 12 plus jobs!

Anywho yadayada this is not a life-insurance lesson. The point is that if somone does not qualify for a reverse mortgage or Equity Key (maybe they are too young) this could be a great alternative.

 On a $500,000 loan the payment would be $156.25/mo, $1,000,000 loan it would be $312.50/mo

The cost of funds or deferral rate is obviously going to be higher then the vanilla 30yr fixed or 5/1 arm’s current rates. (I guess we can’t have our cake and eat it too.) One has to ask is the additional premium on the money worth it in order to have the option of equity management? Does it make sense for someone who needs to use this 5years before they qualify for a reverse mortgage or equity key? Does it make sense for a self-employed borrower or someone whose income fluctuates? Ideas? Thoughts?