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Reverse Mortgage Truth


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Reverse Mortgage Truth

  1. 1. Welcome to “The Truth About Reverse Mortgages The Good, The Bad & The Ugly” sponsored by
  2. 2. What You Will Learn Today <ul><li>What is a Reverse Mortgage? </li></ul><ul><li>A Brief History of the Reverse Mortgage </li></ul><ul><li>Why are They Growing in Popularity? </li></ul><ul><li>What is Good, Bad & Ugly About Them? </li></ul><ul><li>Does the Lender “Get” the House? </li></ul><ul><li>How are Reverse Mortgages Being Used to Save People From Foreclosure? </li></ul><ul><li>When Can the Lender Demand Repayment? </li></ul>
  3. 3. What is a Reverse Mortgage? <ul><li>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 </li></ul>
  4. 4. A Brief History of the Reverse Mortgage <ul><li>December 22, 1987 – U.S. Congress passes FHA Legislation (S. 825) </li></ul><ul><li>February 5, 1988 – Ronald Reagan signs the bill into law </li></ul><ul><li>October 19, 1989 – First Reverse Mortgage is made to Marjorie Mason of fairway, Kansas </li></ul>
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  6. 6. Why are They Growing in Popularity? <ul><li>Many Seniors on fixed incomes are having a hard time making ends meet </li></ul><ul><li>Many Seniors have fallen behind on their mortgages, are in trouble and don’t have the credit to qualify for many other loans </li></ul><ul><li>Many Seniors’ retirement accounts have been severely depleted </li></ul><ul><li>Many Seniors are starting to realize that Reverse Mortgages are not as bad as they thought they were </li></ul>
  7. 7. What Do You Need to Qualify? <ul><li>If you are 62 or older and you own a home– you AUTOMATICALLY qualify </li></ul><ul><li>You must qualify for enough to pay off any existing loans or liens </li></ul><ul><li>There are no Credit, Income, Asset or Medical Requirements Whatsoever </li></ul><ul><li>Only for Primary Residences – Right Now </li></ul><ul><li>1-4 Family Properties, Condos and Co-ops only – No Commercial or Mixed-Use property </li></ul>
  8. 8. How Much Money Do You Get? <ul><li>The exact figure is different for every borrower and is calculated based on </li></ul><ul><li>The age of all of the Homeowners </li></ul><ul><li>The Value of the Home or the FHA limit </li></ul><ul><li>Current Interest Rates </li></ul><ul><li>Every Situation is different and unique </li></ul>
  9. 9. How Can You Receive the Money? <ul><li>The Choice is Yours </li></ul><ul><li>Lump Sum </li></ul><ul><li>Monthly Payments </li></ul><ul><li>Line of Credit </li></ul><ul><li>Any Combination of the Above </li></ul><ul><li>You can change at any time </li></ul>
  10. 10. The Bad, The Ugly & The Good
  11. 11. First - The Bad <ul><li>Reverse Mortgages are Negative Amortization Loans </li></ul><ul><li>The Balance Grows Every Month </li></ul><ul><li>Interest compounds on your Interest </li></ul><ul><li>If you live for a long time, there may be no equity left for you or your heirs </li></ul><ul><li>BUT </li></ul><ul><li>You can never owe more than the house is worth </li></ul>
  12. 12. Second – The Ugly <ul><li>CLOSING COSTS </li></ul><ul><li>Typically Between $10,000 & $20,000 – Depending on the value of your home </li></ul><ul><li>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 </li></ul><ul><li>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 </li></ul><ul><li>Each Situation is different </li></ul><ul><li>None of the Closing Costs come out of your pocket </li></ul>
  13. 13. Now – The Good <ul><li>Lines of Credit Grow and Compound </li></ul><ul><li>No Monthly Payments to Make </li></ul><ul><li>Possible Monthly Payments to Receive for life </li></ul><ul><li>No Income or Credit Needed to Qualify </li></ul><ul><li>You Keep Title to Your Home </li></ul><ul><li>Many Choices on How to Receive the Money </li></ul><ul><li>You are utilizing your own money to help yourself in your later years </li></ul><ul><li>Foreclosure Rescue </li></ul><ul><li>Reverse Mortgages are Non-Recourse Loans </li></ul>
  14. 14. Lines of Credit Grow and Compound <ul><li>The unused portion of your available line grows at the same rate that interest is accruing on the portion you use </li></ul><ul><li>EXAMPLE </li></ul><ul><li>You qualify for $200,000 </li></ul><ul><li>You use $100,000 to pay off your existing loan and closing costs </li></ul><ul><li>The rate on the loan is 3.5% </li></ul><ul><li>After one year, you will have $103,500 available </li></ul><ul><li>After five years, you will have almost $120,000 </li></ul>
  15. 15. Monthly Payments – As Long as You Live in the Home <ul><li>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 </li></ul><ul><li>EXAMPLE </li></ul><ul><li>You qualify for $2,000 per month </li></ul><ul><li>You live to be 120 and you now owe over a million dollars </li></ul><ul><li>The payments will NOT STOP </li></ul><ul><li>This is better than any annuity available </li></ul>
  16. 16. Why a Reverse Mortgage is not only a last resort <ul><li>Many Borrowers want a cash cushion – just in case </li></ul><ul><li>Many Borrowers use a Reverse Mortgage as a hedge when their retirement savings takes a big hit </li></ul><ul><li>Many Borrowers take some of the proceeds and buy Long Term Care Insurance or Life Insurance with the proceeds </li></ul><ul><li>Many Borrowers use the proceeds to enhance their lives (e.g. take a vacation, buy an RV, Give to their children or grandchildren, etc.) </li></ul>
  17. 17. Common Misconceptions <ul><li>You will lose your home – On the Contrary, you can live in the home for as long as you want to </li></ul><ul><li>It’s only a last resort – Many Reverse Mortgage borrowers use it as a financial tool </li></ul><ul><li>It is not safe – It is the safest way to use your equity, because it is insured by the Federal Government </li></ul><ul><li>It’s free money – It is a loan </li></ul><ul><li>Your Equity is your safety – Equity is not safe or spend-able </li></ul>
  18. 18. Does the Lender “Get” The House? <ul><li>NO </li></ul><ul><li>You own the home and have a lien on it, just like a regular mortgage </li></ul><ul><li>The lender does not want your house </li></ul><ul><li>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 </li></ul>
  19. 19. How is a Reverse Mortgage Different from a Regular Mortgage? <ul><li>If you take a regular mortgage and don’t make payments on it, eventually, you will be foreclosed on and evicted </li></ul><ul><li>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 </li></ul>
  20. 20. What are some of the Alternatives to a Reverse Mortgage? <ul><li>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 </li></ul><ul><li>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 </li></ul><ul><li>If you take a Reverse Mortgage – You can sleep at night knowing that your monthly payments will NEVER run out </li></ul>
  21. 21. How are Reverse Mortgages Being Used to Save People From Foreclosure ? <ul><li>Reverse Mortgages are Rescuing People from Foreclosure Every Day </li></ul><ul><li>Many lenders will take a “Short Payoff” </li></ul><ul><li>Any Second Lien holder makes things more complicated </li></ul><ul><li>For Many Borrowers, a Reverse Mortgage is their ONLY option </li></ul>
  22. 22. What About Public Benefits ? <ul><li>Social Security and Medicare are NOT affected by Reverse Mortgages </li></ul><ul><li>SSI or Medicaid can be and a trusted professional should be consulted </li></ul><ul><li>Receiving the proceeds through a line of credit usually avoids most of these issues </li></ul>
  23. 23. How Does the Lender Make Money? <ul><li>The Lender does not know when they will be paid back, BUT </li></ul><ul><li>The lender is guaranteed to get paid every dollar of interest at some point </li></ul><ul><li>The lender has no payment risk or even value risk, because they are insured against loss by the Government </li></ul>
  24. 24. When Does the Money have to be paid back? <ul><li>If the Home is Sold </li></ul><ul><li>When the last borrower passes away </li></ul><ul><li>If the last borrower no longer lives in the home for twelve consecutive months </li></ul><ul><li>The lender will typically give the heirs at least a year to pay off the loans after the last borrower passes away </li></ul><ul><li>The lender cannot collect more than the value of the home, if it is sold </li></ul>
  25. 25. What will be owed when it gets paid back? <ul><li>All of the money that’s been advanced including closing costs </li></ul><ul><li>PLUS Interest </li></ul><ul><li>BUT, if the home is sold, the lender can only collect the value of the home </li></ul>
  26. 26. Can the loan be paid off early? <ul><li>Absolutely - There are no pre-payment penalties </li></ul><ul><li>The home can be sold at any time </li></ul><ul><li>If the last borrower passes away, the heirs have at least a year to pay off the loan </li></ul><ul><li>If they have the money, they can pay it off </li></ul><ul><li>If they want to keep the property, they can refinance into a regular loan </li></ul><ul><li>Most likely, they will just sell the property </li></ul>
  27. 27. The Reverse Mortgage Process <ul><li>Education </li></ul><ul><li>Application </li></ul><ul><li>Independent Counseling – Over the phone </li></ul><ul><li>Appraisal </li></ul><ul><li>Processing </li></ul><ul><li>Closing </li></ul><ul><li>Congratulations ! </li></ul>
  28. 28. Conclusions <ul><li>If you qualify for a Reverse Mortgage, and have a financial need, it may be a good option for you </li></ul><ul><li>There are drawbacks to a Reverse Mortgage and they should be considered carefully </li></ul><ul><li>No other loan works the same way that a Reverse Mortgage does </li></ul><ul><li>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. </li></ul>
  29. 29. For More Information <ul><li>WWW.AARP.ORG </li></ul><ul><li>WWW. NRMLA.ORG </li></ul><ul><li>Speak to Michael Pinter </li></ul><ul><li>718-906-6132 </li></ul><ul><li>[email_address] </li></ul>