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Reverse Mortgages for Senior Homeowners. Table of Contents  Introduction  Chapter 1 Yesterday, Today & Tomorrow  Chapter 2 Guide to Reverse Mortgage.

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Presentation on theme: "Reverse Mortgages for Senior Homeowners. Table of Contents  Introduction  Chapter 1 Yesterday, Today & Tomorrow  Chapter 2 Guide to Reverse Mortgage."— Presentation transcript:

1 Reverse Mortgages for Senior Homeowners

2 Table of Contents  Introduction  Chapter 1 Yesterday, Today & Tomorrow  Chapter 2 Guide to Reverse Mortgage Plans  Chapter 3 The Reverse Mortgage Loan  Chapter 4 Expenses, Fees, and Closing Costs  Chapter 5 Tax Benefits & Treatments: Annuity Issues and Rebuilding an Estate

3 Who Are “Seniors”?

4 Influences

5 Introducing the Reverse Mortgage  Overall Concept  Types of Plans  Who is Eligible  How to Obtain  Costs Involved

6 Chapter 1: Yesterday, Today & Tomorrow KEY TERMS  Collateral  Equity  Fannie Mae  FHA  Forward Mortgage  HECM  HomeKeeper ®  HUD  Mortgage-backed Security  Reverse Mortgage

7 A Little History  1979Federal Home Loan Bank creates Reverse Mortgage concept  1989HUD/FHA introduces HECM  1989Fannie Mae agrees to purchase HECM loans  1996Fannie Mae creates HomeKeeper ®  1998HECM becomes permanent program

8 Home Equity Conversion Mortgage  Designed by HUD  Insured by FHA  Payments continue as long as one homeowner remains in home  Loan balance not due until borrowers die or leave the home  Total due lender cannot exceed value of home at time of sale

9 HECM Basic Requirements  Borrowers must be at least 62 years old  Home must be FHA approved  Borrowers must live in home as principal residence  Home must be free of debt or nearly paid off  Owners must not be in, or filing for, bankruptcy.

10 HECM Counseling Required  2-hour session  HUD-approved counseling agency  Free of charge  Includes discussion of other alternatives  Certificate of HECM Counseling issued, good for 180 days

11 Safeguards  Loan never becomes due until last homeowner leaves the home  Payments continue even if payments exceed value of the home  No repayment required of amount paid out in excess of value of the home  If lender fails, FHA will make payments  FHA covers any shortfall if amount due exceeds value of the home

12 Forward vs. Reverse  Forward Mortgage on $100,000 loan Each payment from borrower to lender: Principal decreases  Reverse Mortgage with $100,000 loan Each payment to borrower from lender: Principal increases “Up the Down Staircase”

13 Four Basic Plans  Tenure -Monthly payments for life  Term -Monthly payments for set number of years  Line of Credit -Draws in amount and time of borrower’s choosing  Lump Sum -Total amount available drawn at closing

14 Chapter 2: Guide to Reverse Mortgage Plans KEY TERMS  Adjustable Rate Mortgage (ARM)  Deed of Trust  401(k)  Property Tax  IRA  IRS Tax-free gifts  Living Educational Legacy  Loan-to-Value (LTV)  Mortgage  Proprietary Reverse Mortgage  Social Security Benefits  Special Assessments

15 Features in Common  No income-qualifying requirements  Title to property remains in borrower’s name  Borrower remains responsible for payment of taxes and insurance  Total loan balance not due until last homeowner leaves the property  Total amount due lender cannot exceed value of home at time loan is repaid

16 HECM Eligibility Requirements  All owners must be at least 62 years old  Home must be their principal residence at least 6 months of year  At least one homeowner must reside in home at time of closing  Borrowers must receive reverse mortgage counseling The Homeowners

17 HECM Eligibility Requirements  Can be single-family, 1 to 4 unit owner occupied, FHA- approved condominium, PUD, or manufactured home  Must meet minimum FHA property standards The Home

18 HECM Eligibility Requirements  Any existing mortgage must be paid off at closing  HECM must be first mortgage but can be used to pay off existing debt  FHA mortgage insurance required The Loan

19 How Much Can Be Borrowed Total amount available is based on:  Age of borrowers  Value of property  Average interest rate

20 Tenure Plan  Monthly payments for life  Advances are secured by mortgage or deed of trust  Amount of payment remains fixed  Interest, insurance, and servicing fees added each month  Total loan balance increases every month  No payment due until last homeowner dies or leaves the property

21 Amount of Monthly Payment Actual amount to be received monthly is based on:  Location of home  Value of home  Equity in home  Age of youngest homeowner  Interest rate at time of closing

22 Applications for Tenure Plan Balance budget Pay for medicine Early retirement

23 Term Plan  Amount available calculated same as for Tenure Plan  Payments made for set number of years  Borrower designates number of years  At end of term, payments stop  Repayment of total loan balance not due until last homeowner leaves the home  Monthly amount received depends on length of time payments are desired

24 Applications for Term Plan Assist elderly parent Retire early Provide in-home care

25 Line of Credit Plan  Line of credit established based on equity  Homeowner can draw any amount at any time until available principal is depleted  Interest is charged only on amount drawn  No repayment is required until last homeowner either dies or leaves the home  Amount of cash available increases  Needs to be used to be cost-effective

26 Applications for Line of Credit Plan

27 Lump Sum Plan  Calculated same as Tenure or Term  One lump sum of all available funds drawn at closing  Can be combined with tenure or term plan  Interest is calculated and charged each month along with insurance and servicing  Total balance becomes due whenever property is sold

28 Applications for Lump Sum Plan

29 Chapter 3: The Reverse Mortgage Loan  Fannie Mae Maximum Loan Limit  FHA Maximum Loan Limit  FHA Mortgage Insurance  Maximum Claim Amount  NRMLA  Origination Fee  Servicing Fee

30 The Process  Step 1:Counseling 2-hour session 2-hour session Certificate of HECM Counseling good for 180 days Certificate of HECM Counseling good for 180 days  Step 2: Find a Lender

31 Things to Consider  Cost - Origination & Servicing Fees  Experience - Number of Reverse Mortgages  Servicing - Administrative Costs  Commitment - Professional Relationships

32 “How Much Can I Get?”  Location, Location, Location  Market value at time of closing  Maximum loan limits  Equity in the home  Age of borrowers  Interest rate

33 Reverse Mortgage Calculator  When were you born?  When was your spouse or co-owner born?  How much is your house worth?  Your ZIP Code

34 Chapter 4: Expenses, Fees, and Closing Costs KEY TERMS  Closing Costs  Escrow Funds  Federal Income Tax  Home Inspection  Homeowner Insurance  Periodic Statements  Points  Recording Fees  Settlement  Student Loan  Survey  Title Insurance  Total Annual Loan Cost (TALC)

35 Timing and Overview  How Long Does it Take?  How Much Does it Cost?

36 Closing Costs for RM Loan  Total Annual Loan Cost (TALC) Application Fee Application Fee Appraisal and Credit CheckAppraisal and Credit Check Origination Fee Origination Fee Preparation and ProcessingPreparation and Processing Closing Costs Closing Costs Title search and insurance, survey, inspection, recording fees, property taxTitle search and insurance, survey, inspection, recording fees, property tax Mortgage Insurance Premium Mortgage Insurance Premium HECM loanHECM loan 2% of value or $2000 – can be financed 2% of value or $2000 – can be financed

37 Monthly Costs for RM Loan  Adjustable Rate Interest Adjust monthly or annually Adjust monthly or annually U.S. Treasuries plus margin U.S. Treasuries plus margin  Mortgage Insurance HECM: ½% of loan amount charged monthly HECM: ½% of loan amount charged monthly HomeKeeper ® : averages.8% annual, charged monthly HomeKeeper ® : averages.8% annual, charged monthly  Service Fee Ranges from $25 to $35 per month Ranges from $25 to $35 per month All costs charged monthly and added to principal loan balance. Periodic status statements sent out every 3 months. No payment is due until mortgage loan is paid off.

38 Additional Costs  Homeowner Insurance and Property Tax  Maintenance and Repairs

39 Chapter 5: Tax Benefits and Treatments: Annuity Issues and Rebuilding an Estate  KEY TERMS  Annuity  Property Tax  Tax Reporting Service  Total Finance Charges

40 Tax Benefits & Treatment  Total Finance Charges Accrued interest Accrued interest Mortgage insurance premiums Mortgage insurance premiums  Tax Deductions Interest Interest Property Tax Property Tax Special assessments Special assessments Deferred payments Deferred payments  Not deductible until year loan is paid off  Must file itemized return

41 Adding an Annuity

42 Rebuilding an Estate  Changing Attitudes Leaving an estate Leaving an estate Financial choices Financial choices  Return to Workplace Pay off reverse mortgage Hold reverse mortgage in reserve


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