Reverse Mortgage Loans Chris Grevelis Reverse Mortgage Specialist
- Slides: 20
Reverse Mortgage Loans Chris Grevelis Reverse Mortgage Specialist 1
What is a Reverse Mortgage? n It’s a home loan that borrows against your home’s equity to supplement your retirement with extra, tax-free funds. n There are no monthly payments to make. You do not repay the loan for as long as your home remains your primary residence. 2
What is a Reverse Mortgage cont. n Loan proceeds are determined by ¨ Age of homeowner(s) ¨ Value of home ¨ Location of the home ¨ Interest rate 3
Age and Eligibility Requirements n You and any co-borrowers must be at least 62 years old. n Your home must be your primary residence. 4
Age and Eligibility Requirements cont. n Any existing mortgages will be paid off with the Reverse Mortgage proceeds. n There are no income, employment or credit qualifying restrictions. 5
Flexible Payment Options n You can obtain your Reverse Mortgage proceeds: In a lump sum payment to cover large expenses • In “Term” or “Tenure” monthly payments to supplement your income • As a line of credit to draw on as you need it • Or any combination of cash, monthly income and credit line you select (HECM only) • 6
Flexible Payment Options cont. n You can receive an immediate cash advance in addition to monthly payments. n You can change payment plans as many times as you wish. 7
Reverse Mortgage Repayment n No mortgage payments are required throughout the life of your Reverse Mortgage loan. n The loan may be repaid at anytime either in whole or in part and without penalty 8
Repayment cont. n Partial repayment can be used to increase your monthly income payments n The outstanding loan balance, plus accrued interest, becomes due when you sell or vacate your home. 9
Common Misconceptions n “The lender will take my house. ” ¨ Homeowner retains full ownership ¨ Reverse mortgage is a loan n “I can be thrown out of my home. ” ¨ Homeowner can stay in the home forever 10
Common Misconceptions cont. n “I can owe more than my home is worth. ” ¨ Homeowner can never owe more than the value of the home n “My heirs will be against it. ” ¨ Experience demonstrates that heirs are strongly in favor of reverse mortgages 11
Frequently Asked Questions n Question: When must the loan be repaid? n Answer: Your loan balance plus accrued interest becomes due when you no longer occupy the home (typically upon your death). After a grace period, your estate may repay the loan by selling the home or by paying off the balance due and keeping the home. 12
Frequently Asked Questions n Question: Will receiving my Reverse Mortgage proceeds in monthly payments affect my Social Security, Medicare supplemental security income, or Medicare benefits? n Answer: Social Security benefits and Medicare generally not affected by a reverse mortgage. You should consult your tax advisor. 13
Frequently Asked Questions n Question: Are there tax benefits to the borrower? n Answer: Yes there are benefits. It can be set up as a mini tax shelter, which you can discuss with your advisor. Or, upon vacating the property, you or your heirs can take the cumulative tax deductions that have accrued. 14
Example 1: Hedge n 70 year widow needs to supplement her income by $8, 800 per year (4% of her $220, 000 portfolio) n Between March 2000 and October 2001, her portfolio declines 36% and is now $140, 000 n $8, 800 would now equal a 6. 3% draw down rate and greatly increase the odds of her running out of money in her lifetime. 15
Solution n Secure a Reverse Mortgage giving her $109, 178 in a line of credit n Draw $8, 800 a year from her credit line rather than her investment portfolio n Allow her investment portfolio to recover 16
The Results n By 2006 her portfolio has recovered to $270, 000 n She is able to discontinue supplementing from her Reverse Mortgage credit line n Resumes 4% payments from her investment portfolio 17
Example 2: Fund LTC/Life Combo Situation n 65 year old couple n $300 K home n Minimal portfolio assets n Desires to leave an estate Problem n Statistically one spouse will require Long Term Care n Risk is high: the estate will be depleted 18
Solution n 1. 2. Establish Reverse Mortgage Credit Line & Fund “Shared LTC” Policy o 4 years protection for either spouse o Cost = 1/3 less than individual policies o $4, 960 per year “Second to Die” Life Policy o o o Amount = $500 K death benefit Cost = $5, 880 per year Total Annual Credit Line Withdrawals: $10, 840 19
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