Reverse Mortgages

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What We Will Cover Today What is reverse mortgage? Who and what is eligible for a reverse mortgage? What types of reverse mortgages are there? Counseling Requirement Lending Factors Current Rates Payment Options Interest Rate Options Closing Costs & Fees Facts to Know Repayment Requirements Reverse Mortgage Examples Other options Where to go for more information Reverse Mortgage Trends

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What is a Reverse Mortgage?

A special type of home loan that lets a homeowner convert a portion of the equity in his or her home in cash.

The equity built up in the property can be paid to the owner.

No repayment is required until the borrower(s) no longer use the home as their primary residence.

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Who is eligible for a reverse mortgage?

Homeowners Primary Residence 62 Years of age or older Any debt on home must be

included on new loan No subordinate loans allowed

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What properties are eligible for a reverse mortgage?

Owner-occupied Single family homes, two-to-four unit

properties, condominium units, and units in qualified planned unit developments.

Properties in trusts and qualified leasehold estates

Cooperatives and other properties may only be available in investor sponsored programs.

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What types of reverse mortgages are there? Home Equity Conversion Mortgage (HECM)

Federally insured product Represents 90% of all Reverse mortgage transactions Based on FHA loan limits & guidelines.

Fannie Mae Home Keeper Allows higher loan limits than HECM program.

Home Keeper for Home Purchase Allows for purchase of new home with a reverse

mortgage. Private/Investor Programs

Allows for higher loan amounts. Allows for unusual properties or other situations not

typically allowed by FHA or Fannie Mae.

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Counseling Requirement As a pre-application requirement, all borrowers

are required to seek counseling from approved agency.

Face-to-face counseling required from HUD approved counseling agency

Face-to-face or telephone counseling allowed through AARP counselor.

Given needed certificate upon completion Required topics:

Information on reverse mortgages Determines eligibility Discusses other options available to assist.

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Lending Factors

Your age Appraised home value Current interest rates Location of your home

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Current Rates

Interest Rate = 4.82%APR = unlike traditional loans, the

APR on Reverse Mortgages can vary greatly and can, in fact get very high. The APR on each loan is determined by rate and repayment time.

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Payment options Tenure- equal monthly payments as long as at least one

borrower continues to occupy the property as their primary residence.

Term- equal monthly payments for a fixed period of months selected.

Line of Credit- unscheduled payments or in installments, at times and in the amounts of the borrower’s choosing until the line of credit is exhausted.

Modified Tenure- combination of line of credit with monthly payments for as long as the borrower remains in the home.

Modified Term- combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

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Interest Rate Options Annually-adjustable rate

Adjusted yearly based on movement in the one-year U.S. Treasury Security rate (t-rate)

Capped at 2% increase/decrease per year and 5% increase/decrease over the life of the loan

Monthly-adjustable rate Life cap only- 10% Allows for higher initial advances Most Common choice for HECM.

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Closing Costs & Fees Origination Fee = 0-2% Mortgage Insurance Premium

2% of loan amount at close .5% of loan amount on annual basis

Normal closing costs- appraisal, title, document preparation, etc.

Servicing Set-Aside $30-35 per month for life of the loan Covers projected costs of servicing

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Facts to Know

No tax implications for cash received. No direct implications for social

security or other income related benefits.

No restrictions on the use of the money.

Normally closing costs are significantly greater.

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Repayment Requirement

Death of all borrowers on loan. Sale of the property. Home is no longer a primary

residence. Borrower transfers title of the

home.

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Reverse Mortgage Examples

FHA/HUD Fannie Mae Private/Investor

Monthly HomeKeeper Programs

CASH AVAILABLE

Cash Available Without Liens $93,321 $51,551 $49,861

Cash Available After Paying Off Liens $68,321 $26,551 $24,861

OR MONTHLY INCOME

Monthly Income Without Liens $544 $404 N/A

Monthly Income After Paying Off Liens $399 $208 N/A

Monthly Savings By Paying Off Liens $500 $500 $500

Net Additional Monthly Income $899 $708 $500

OR LINE OF CREDIT

Creditline Available After Paying Off Liens $68,321 $26,551 $24,861

Annualized Growth Rate 5.46% N/A 5.00%

Creditline Value In 5 Years $89,133 $26,551 $31,729

Creditline Value In 10 Years $116,285 $26,551 $40,495

OR ANY COMBINATION OF THE ABOVE

  For example:  1/2 Cash Available, 1/4 Monthly Income and 1/4 Line of Credit.

Assumptions: Age Information: 01/01/1940     Nearest Age: 65

Current Mortgage: $25000 Current Monthly Mortgage Payment: $500

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Other Options Home Equity Line of Credit

Banks Brokerage/investment houses

Option ARM mortgages 4 Payment options

30 Year amortization 15 Year amortization Interest only payment Minimum payment (1.0-3.0%)

Interest Only loans

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Where to go for more information?

www.aarp.org www.reverse.org www.reversemortgage.org www.hud.gov Reverse Mortgage Calculator

www.financialfreedom.com

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Reverse Mortgage Trends Federally insured loans increased from

less than 6000 in 2000 to over 38,000 transactions in 2004.

Represent over $6 billion in volume in 2004.

90% of all reverse mortgages are part of the federally insured “HECM” program.

According to Wall Street Journal 4/26/05 “Tool Designed to Cover Basic Needs is Used Increasingly for Second Homes and Luxury Items”

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Leading Reverse Mortgage Lenders

Look for a professional Wells Fargo Mortgage

www.wellsfargomortgage.com IndyMac Bank

www.indymac.com

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Questions?

Thanks for your timeTravis BeMent

Loan ConsultantYourOrlandoMortgage.com

(407) 619-4432