Presentation on theme: "REVERSE MORTGAGE 101 Presented by Glenn T. Thomas Reverse Mortgage Sales Manager Office: (916) 549-3506 Cell: (510) 394-5610 Fax: (916) 594-0914"— Presentation transcript:
REVERSE MORTGAGE 101 Presented by Glenn T. Thomas Reverse Mortgage Sales Manager Office: (916) 549-3506 Cell: (510) 394-5610 Fax: (916) 594-0914 Glenn.Thomas@EliteNorcal.com www.gttconsultants.com
Demographics The number of older Americans has increased from 3.1 million in 1900 to 35 million in 2000. The projections indicate that there will be 92 million older Americans in 2060. This means there will be more and more Americans eligible for reverse mortgages.
Longevity The average baby boomer will live to be 83. Today, a 65-year-old man has a one in four chance to live to 92. A 65-year old woman has a one in four chance to live to be 94. Married couples who are 65 have a one in four chance of at least one spouse living to 97. Boomers will have 30+ years of retirement. When Social Security was established in 1935, retirement age was established to be 65 but life expectancy was only 61.
Marital Status In the 65 and older population, men are more likely than women to be married, while women are more likely to be widowed. In 2012, 72% of men live with a spouse, while 19% live alone, and 9% have other arrangements. By comparison, 46% of older women live with a spouse, and 36% live alone, and 19% have other living arrangements. Older, unmarried women tend to have lower incomes and may need the supplemental monthly income a reverse mortgage can provide.
Geographic Distribution The proportion of older persons in the population varies considerably by state with some states experiencing much greater growth in their older populations. In 2011, over half (51%) of persons 65+ lived in nine states: California (4.4 million) Florida (3.4 million) New York (2.7 million) Texas (2.7 million) Pennsylvania (2.0 million) Ohio (well over 1 million) Illinois (well over 1 million) Michigan (well over 1 million) North Carolina (well over 1 million)
I. WHAT IS A REVERSE MORTGAGE? (HECM) In plain English, a reverse mortgage is nothing more than an equity loan secured by your home which is designed to defer the mortgage interest. It’s as simple as that. 1. The Home Equity Conversion Mortgage (HECM) is a FHA’s reverse mortgage program, which enable you to withdraw some of the equity in your home. The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses,and make home improvements and more.
2.A reverse mortgage enables older homeowners (62+) to borrow against the equity in their homes without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you. 3. What are the Payment Options? Lump sum at closing Line of credit Tenure (for up to life) Term I. WHAT IS A REVERSE MORTGAGE? (HECM) (cont.)
4. Product Options 1. The HECM FIXED RATE The interest rate is fixed for life at the time of closing The origination fee is low and some there is a fee They have to take all your money at closing in a lump sum and if the mortgage they can only pull out 60% of funds 2. HECM ADJUSTABLE The interest rate fluctuates on a monthly or annual basis They can choose a lump sum draw, line of credit, monthly payment, or a combination of these options. The first year you can pull out 60% of funds and the remaining balance can be accessed in one year The line of credit has a growth rate that grows over time I. WHAT IS A REVERSE MORTGAGE? (HECM) (cont.)
5.It’s a tool to help plan and manage retirement 3. The HECM for Purchase Allows Them to purchase new home and have no monthly payments Great for people looking to downsize and not have to use all their funds Can get into a home with as little as 50% down You can sell the current home and help them buy the new home I. WHAT IS A REVERSE MORTGAGE? (HECM) (cont.)
Lender DOES NOT take ownership of the house Lender DOES NOT share in the appreciation Poor credit DOES NOT disqualify a prospective borrower Residence DOES NOT have to be debt-free Social Security & Medicare are NOT at risk Medi-Cal Can be affected Your proceeds can be tailored to meet your qualifications II. LET’S CLEAR UP SOME MISCONCEPTIONS
Non-Recourse Loan: One can NEVER owe more than the value of the home at repayment Other assets will NEVER be invaded by the lender Reverse mortgages are NOT just an option of ‘last resort’…They should be considered in your overall financial planning. The largest reverse mortgage in history was approved for $18M on a Bel Air home, valued at $54M. Other ways of working with outlines
Option 1: Bob and Sally are 75 years old and own their own home ‘free and clear,’ valued at $235,000. Use reverse mortgage options to stay in their home and maintain their current lifestyle Reverse Mortgage proceeds available to them: $795.55 monthly payments for life, or $78,766 Lump Sum (HECM FIXED), or $74,416 available at closing and $54,802 available after the first year (HECM ADJ) The reverse mortgage has a growth rate that increases available funds over time Can never be reduced or eliminated due to market changes III. UNDERSTANDING BORROWER OPTIONS
Product Comparison Sheet Shows fees Interest Margin Initial Interest Rate Expected Interest Rate Cap on Interest Rate Calculation Home Value Principal limit Liens LOC Available Funds
Amortization Schedule Show Annual Totals MIP Interest Rate End of the year total Loan Balance Line of credit Property value Equity
III. UNDERSTANDING BORROWER OPTIONS Bob and Sally are considering how they will use their reverse mortgage proceeds: Retire other debt? Pay for long term care insurance premiums? Pay for increasing health costs? Set up college funds for their grandchildren? Renovate their home as their generational requirements change?
Option 2: Bob and Sally decide to sell the home, downsize to a $100,000 home that fits their current needs Sell Their current $235,000 home Pay cash for the new $100,000 property leaving $135,000 to invest and live on… OR Use a reverse mortgage to finance the purchase of their new home. At 75 years of age… A reverse mortgage can provide $$$ in proceeds to purchase a new home. Bob and Sally ONLY have to come to closing with $47,186. This leaves $187,814 to fund remaining longevity. III. UNDERSTANDING BORROWER OPTIONS
Available proceeds (Principal Limit) are calculated using the following factors: Appraised value of the home or FHA lending limit ($625,500), whichever is less. Current interest rates. Age of youngest borrower IV. HOW MUCH CAN A BORROWER QUALIFY FOR?
Do I Qualify? You must be 62 years or older You must have equity in your home You must live in your home You must maintain your property You must pay your property tax and insurance That’s all it takes to qualify!
What is the Catch? This is an FHA Loan and the government charges an insurance premium against any possible loss to the bank. The government insures that you will never stop receiving your money no matter what happens to the bank. The government insures that you will never owe more than your property is worth. There is no Catch!
You have to qualify the borrower Ask questions about the retirement plans; immediate, short term and lifetime Immediate; checking account, cash, monthly expenses both in & out Short; savings, money market accounts and emergencies Lifetime; 401K or IRA, Investment Portfolio, pensions & retirement income What made you look into a Reverse Mortgage in the first place? Match the right product to the borrower Explain HUD counseling: A HUD counseling certificate is needed before an application can be submitted to a lender and a FHA case number can be issued Sign up for the Mentorship program (details coming soon) V. NOW THAT I HAVE A BORROWER, WHAT’S NEXT?
Items needed to submit loan Have the borrower to get their counseling certificate before they complete application Signed application Copies of items needed to process your loan Reverse Mortgage package: Driver’s license or government issued ID’s Social Security Card or Medicare Card Copy of recent mortgage statement Current home owner’s insurance policy both hazard (just the declaration page) flood if applicable. Counseling certification signed by all borrowers Provide complete copy of trust documentation (if applicable). Provide POA (if applicable).
Glenn T. Thomas Reverse Mortgage Sales Manager Office: (916) 549-3506 Cell: (510) 394-5610 Fax: (916) 594-0914 Glenn.Thomas@EliteNorcal.com www.gttconsultants.com CONTACT INFORMATION