Reverse mortgage to financial planners (insurance)

How to Use Reverse Mortgages to Help Your Clients with Their Insurance Needs Presented by: Michael Pinter

ANYONE 62 or older who owns a home, qualifies for a Reverse Mortgage
Seniors will never have to leave their home
No income, asset, medical or credit qualification
No monthly mortgage payments
No repayment of the loan until the last borrower moves out permanently or passes away
Equity is tax-free
Proceeds paid in lump sum, monthly payments, line of credit or any combination
Interest may be tax-deductible upon loan repayment

How a Reverse Mortgage Works
Amount of proceeds available to the borrower is based on three factors
Age of homeowner(s)
Appraised value of home
Current Interest Rates
Loan is repaid at death or move-out and repayment NEVER exceeds value of home
Amount repaid is principal, accrued interest, and all service or other applicable fees

Common Misconceptions
“ The lender takes the house”
- Homeowner retains title to the property
“ I can be thrown out of my home”
- Homeowner can stay in home until maturity event occurs
“ I can owe more than my home is worth”
- Homeowner can never owe more than the value of the home
“ My heirs will be against it”
- Experience demonstrates most heirs
are in favor of Reverse Mortgages

Reverse Mortgage Credit Lines Grow and Compound
Borrowers can receive the proceeds as a lump sum, monthly check or as a line of credit
Credit lines are, BY FAR, the most popular choice of Reverse Mortgage payment options because the unused portion grows and compounds, giving the clients more available funds every year as long as some portion of the line is unused
This is the ONLY product that has this feature
FHA HECM’s grow at their interest rate

The Reverse Mortgage has primarily been
viewed as a last resort to provide funds for
equity rich, cash poor seniors
HOWEVER…….
The “New Generation” Retirees will face:
Financing extended lifetimes
Minimal or no defined pension plans
Rising medical costs
Uncertainty of social security trust fund remaining solvent

“ NEW GENERATION” Seniors
Today’s Senior Citizens are better educated regarding financial concepts such as
Asset allocation
Use of leverage to maximize wealth and reduce risk
They depend heavily on financial professionals to help achieve their objectives

As Part of a Financial Plan
A Reverse Mortgage may benefit individuals or couples:
Who can not afford the risk of long term care expenditures
Who are concerned about providing for their heirs
Who are concerned about estate tax liabilities
Who are insurable, ideally between 62-75

Three Examples of Reverse Mortgage Strategies:
To increase cash-flow and continue to pay premiums on an existing policy
As a funding vehicle for Long Term Care (LTC)/ Life Insurance combo
To Fund a Life Insurance trust

Scenario One- PROBLEM
80 Year Old Clients want to let their Life Policy ($10,000 in annual premium) lapse because of cash flow issues
Client owns $1,100,000 Home and has a $250,000 mortgage balance with a $3,300 monthly payment

SOLUTION – Reverse Mortgage
Client pays off the existing loan
Client receives additional $1,000 a month every month for as long as they live in the home to pay the premiums on their Policy
AND
Client receives a line of credit for $46,000 that grows and compounds annually
If the clients live past the fifteen years and do not use the line of credit until then; they will have over $70,000 available to them.

The Results:
Clients increase their cash flow by $4,300 a month ($3,300 mortgage payment eliminated plus the $1,000 in new income)
They are able to continue paying their premiums and leave their heirs the death benefit proceeds
They have a line of credit for emergency situations

Benefits to Insurance Agent
Continue receiving residual income from premium payments
Significantly affect your clients lives for the better, they will love you and send their friends!
Possibly free up clients’ cash for additional insurance products

Scenario Two - Reverse Mortgage to Fund LTC / Life Combo
Situation:
65 year old couple - $300K home, minimal portfolio assets – desires to leave an estate
Problem:
Statistically one spouse will require a Long Term Care provider
Risk is high the estate will be spent down

Solution:
Establish Reverse Mortgage Credit Line and Fund:
1. “Shared LTC” policy
4 years protection for either spouse
Cost = 1/3 rd less than individual policies
$4,960 per year
2. “Second to Die” Life Policy from RM Credit Line
Amount = $500K death benefit
Cost = $5,880 per year
Total Annual Credit Line Withdrawals = $10,840

Benefits to Client
Long Term Care risk substantially reduced
Life policy replaces lost equity and maximizes estate potential
Flexible Premium Policy
Clients only paid premiums 4 years
$24K plus Closing Costs & Interest purchased coverage for fifteen years

Benefit to Advisor:
Commissions to Financial Advisor:
70% of first year LTC premiums
90% of first year Life premiums
Total commission = $8,764 plus residuals

Scenario Three - Reverse Mortgage to Fund a Life Insurance Trust
Situation:
62 & 65 year old couple - $400K home, $800K portfolio
Problem:
Concerned about future estate tax liabilities for heirs

Solution:
Fund Life Insurance trust with Reverse Mortgage Credit Line
Trust purchases “Second to Die” life policy
*Death Benefit = $1,000,000
*Annual Premium = $11,760

Benefits:
Benefit to Borrower:
Leverage Home to provide $1 million dollars, estate tax free, to heirs
Benefit to Advisor
Commission = 90% of first year premium

Recap: Value Added by All Strategies
Clients –
Manage Risk to their financial well being from portfolio volatility, long term care and estate taxes
Simultaneously add value to their estate
Insurance advisor -
Maintain current revenue streams
Create opportunities for new revenue
Fulfill their fiduciary obligations
.

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Reverse mortgage to financial planners (insurance)

by Michael Pinter on Jun 18, 2010

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Reverse mortgage to financial planners (insurance) — Presentation Transcript