Reverse Mortgage Truth

Welcome to “The Truth About Reverse Mortgages The Good, The Bad & The Ugly” sponsored by

What You Will Learn Today
What is a Reverse Mortgage?
A Brief History of the Reverse Mortgage
Why are They Growing in Popularity?
What is Good, Bad & Ugly About Them?
Does the Lender “Get” the House?
How are Reverse Mortgages Being Used to Save People From Foreclosure?
When Can the Lender Demand Repayment?

What is a Reverse Mortgage?
A Reverse Mortgage is a loan that enables homeowners 62 and older, to convert a portion of the equity in their home into tax-free cash without giving up ownership or ever making a payment while they remain in their home

A Brief History of the Reverse Mortgage
December 22, 1987 – U.S. Congress passes FHA Legislation (S. 825)
February 5, 1988 – Ronald Reagan signs the bill into law
October 19, 1989 – First Reverse Mortgage is made to Marjorie Mason of fairway, Kansas

Why are They Growing in Popularity?
Many Seniors on fixed incomes are having a hard time making ends meet
Many Seniors have fallen behind on their mortgages, are in trouble and don’t have the credit to qualify for many other loans
Many Seniors’ retirement accounts have been severely depleted
Many Seniors are starting to realize that Reverse Mortgages are not as bad as they thought they were

What Do You Need to Qualify?
If you are 62 or older and you own a home– you AUTOMATICALLY qualify
You must qualify for enough to pay off any existing loans or liens
There are no Credit, Income, Asset or Medical Requirements Whatsoever
Only for Primary Residences – Right Now
1-4 Family Properties, Condos and Co-ops only – No Commercial or Mixed-Use property

How Much Money Do You Get?
The exact figure is different for every borrower and is calculated based on
The age of all of the Homeowners
The Value of the Home or the FHA limit
Current Interest Rates
Every Situation is different and unique

How Can You Receive the Money?
The Choice is Yours
Lump Sum
Monthly Payments
Line of Credit
Any Combination of the Above
You can change at any time

The Bad, The Ugly & The Good

First - The Bad
Reverse Mortgages are Negative Amortization Loans
The Balance Grows Every Month
Interest compounds on your Interest
If you live for a long time, there may be no equity left for you or your heirs
BUT
You can never owe more than the house is worth

Second – The Ugly
CLOSING COSTS
Typically Between $10,000 & $20,000 – Depending on the value of your home
The Biggest Component is the fee to HUD to insure your loan and it is based on the value of your home, not the size of the loan
If you are not planning on staying in the home for at least several years, the closing costs usually make the Reverse Mortgage a poor choice
Each Situation is different
None of the Closing Costs come out of your pocket

Now – The Good
Lines of Credit Grow and Compound
No Monthly Payments to Make
Possible Monthly Payments to Receive for life
No Income or Credit Needed to Qualify
You Keep Title to Your Home
Many Choices on How to Receive the Money
You are utilizing your own money to help yourself in your later years
Foreclosure Rescue
Reverse Mortgages are Non-Recourse Loans

Lines of Credit Grow and Compound
The unused portion of your available line grows at the same rate that interest is accruing on the portion you use
EXAMPLE
You qualify for $200,000
You use $100,000 to pay off your existing loan and closing costs
The rate on the loan is 3.5%
After one year, you will have $103,500 available
After five years, you will have almost $120,000

Monthly Payments – As Long as You Live in the Home
If you choose the tenure option, you will get a check every month from the lender, even if you live to be 200 years old and your house is worth less than you owe
EXAMPLE
You qualify for $2,000 per month
You live to be 120 and you now owe over a million dollars
The payments will NOT STOP
This is better than any annuity available

Why a Reverse Mortgage is not only a last resort
Many Borrowers want a cash cushion – just in case
Many Borrowers use a Reverse Mortgage as a hedge when their retirement savings takes a big hit
Many Borrowers take some of the proceeds and buy Long Term Care Insurance or Life Insurance with the proceeds
Many Borrowers use the proceeds to enhance their lives (e.g. take a vacation, buy an RV, Give to their children or grandchildren, etc.)

Common Misconceptions
You will lose your home – On the Contrary, you can live in the home for as long as you want to
It’s only a last resort – Many Reverse Mortgage borrowers use it as a financial tool
It is not safe – It is the safest way to use your equity, because it is insured by the Federal Government
It’s free money – It is a loan
Your Equity is your safety – Equity is not safe or spend-able

Does the Lender “Get” The House?
NO
You own the home and have a lien on it, just like a regular mortgage
The lender does not want your house
The lender is insured by the Government against loss if the borrowers live much longer than expected or if the value of the home drops much more than expected

How is a Reverse Mortgage Different from a Regular Mortgage?
If you take a regular mortgage and don’t make payments on it, eventually, you will be foreclosed on and evicted
If you take a Reverse Mortgage – You can sleep at night knowing that you will NEVER be asked to make a payment, foreclosed on or thrown out of your home

What are some of the Alternatives to a Reverse Mortgage?
Sell your Home – Most (85%) Seniors want to stay in their home. It will also cost you more to sell (6% Realtor’s Commissions) and the current market stinks
Take a HELOC or a Regular Mortgage– a Home Equity Line of Credit, like all other regular loans, requires you to make monthly payments and will run out eventually
If you take a Reverse Mortgage – You can sleep at night knowing that your monthly payments will NEVER run out

How are Reverse Mortgages Being Used to Save People From Foreclosure ?
Reverse Mortgages are Rescuing People from Foreclosure Every Day
Many lenders will take a “Short Payoff”
Any Second Lien holder makes things more complicated
For Many Borrowers, a Reverse Mortgage is their ONLY option

What About Public Benefits ?
Social Security and Medicare are NOT affected by Reverse Mortgages
SSI or Medicaid can be and a trusted professional should be consulted
Receiving the proceeds through a line of credit usually avoids most of these issues

How Does the Lender Make Money?
The Lender does not know when they will be paid back, BUT
The lender is guaranteed to get paid every dollar of interest at some point
The lender has no payment risk or even value risk, because they are insured against loss by the Government

When Does the Money have to be paid back?
If the Home is Sold
When the last borrower passes away
If the last borrower no longer lives in the home for twelve consecutive months
The lender will typically give the heirs at least a year to pay off the loans after the last borrower passes away
The lender cannot collect more than the value of the home, if it is sold

What will be owed when it gets paid back?
All of the money that’s been advanced including closing costs
PLUS Interest
BUT, if the home is sold, the lender can only collect the value of the home

Can the loan be paid off early?
Absolutely - There are no pre-payment penalties
The home can be sold at any time
If the last borrower passes away, the heirs have at least a year to pay off the loan
If they have the money, they can pay it off
If they want to keep the property, they can refinance into a regular loan
Most likely, they will just sell the property

The Reverse Mortgage Process
Education
Application
Independent Counseling – Over the phone
Appraisal
Processing
Closing
Congratulations !

Conclusions
If you qualify for a Reverse Mortgage, and have a financial need, it may be a good option for you
There are drawbacks to a Reverse Mortgage and they should be considered carefully
No other loan works the same way that a Reverse Mortgage does
You should consult with a Reverse Mortgage professional and be accompanied by anyone that will be involved in the decision making process at the time (e.g. Children, Accountant, Trusted Advisor, etc.

For More Information
WWW.AARP.ORG
WWW. NRMLA.ORG
Speak to Michael Pinter
718-906-6132
[email_address]

Reverse Mortgage Truth

by Michael Pinter on Jun 18, 2010

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Reverse Mortgage Truth — Presentation Transcript

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