REVERSE MORTGAGE INFORMATION: Tools, News and Resources to Help Seniors Decide

HUD released the new mortgagee letter for HECM home purchase yesterday with the date of January 1 for the date of earliest application. What does that mean? It means you can use the remaining equity from the sale of your current home to purchase a new home as long as you intend to live in the new purchase and can prove it within 60 days of purchase. We described a bit of how it worked yesterday on this website. Here is a breakdown to follow up with the example used yesterday as well as information that real estate agents will drool upon hearing.

First, lets look at the example again and break it down further. In the example, someone 62 or older in a $400,000 home that intends on downsizing or moving into a different home upon retirement can take advantage of this new capability of using a reverse mortgage to assist in the financing of a home purchase. They could pay the entire purchase price using the proceeds of the sale of their current home, thereby not having a mortgage payment, and only have to pay taxes, maybe condo or association fees and homeowners insurance. But by using the reverse mortgage capability, they could put down a percentage of the value of their purchase and finance the other portion and not have monthly payments to make. This would maximize their retirement income by keeping more cash available for them to use in retirement instead of being tied up in property.

What we didn’t mention yesterday was that in this type of financing, there is no credit requirement, no income requirement which means there’s no debt to income ratio to be concerned with or qualifying documentation to deal with. If the person is 62 or older and can verify a certain amount of cash they will be able to put down on the home purchase, they qualify based on the reverse mortgage requirement. It is almost impossible for someone on fixed income to finance a purchase today without considerable liquid assets, either cash in hand or 401K. In most cases, banks want to see up to 6 months of the fully amortized payment as reserve for the purchase of the home. In addition, they are looking at monthly income that will cover the payment but with debt to income ratio’s in the high 30% range, meaning after payment is made, your remaining montly income makes up the other 60-some percent. Well, most folks on fixed incomes don’t have that kind of capability nor do they need to now with this great HUD resource- the reverse mortgage for home purchase.

In the example below, a 70 year old purchasing a $150,000 condo would only have to put $61,247 down on that purchase and the other part- or $88,753, would be financed using the reverse mortgage. If they were selling a $400,000 home, they would now have $338,753 minus any real estate commission and moving costs. This maximizes their retirement cash flow and allows them to do more of the things they had planned on doing upon their retirement that they could not have done before and the reverse mortgage is what gave them that opportunity. If they didn’t want a mortgage payment, they could have put all $150,000 down but it would have left them with $250,000 minus real estate commission and moving costs. Using the reverse mortgage increased their retirement cash flow by 35%.

WHAT OTHER RETIREMENT PLANNING METHOD GIVES THE CLIENT A 35% INCREASE IN CASH FLOW WITHOUT SELLING A LARGE PORTION OF THEIR PORTFOLIO OR CASHING IN A LIFE INSURANCE SETTLEMENT?

OK, first, we aren’t glass is half full, chicken is falling folks. We believe this financial mess will sort itself out, that clearer heads will prevail and even though some wealth has been wiped from the books (just a Trillion!), that the rapture isn’t just around the corner. So its important to be able to understand where your pension is parked and will it make it through the big Wall Street sifter? There’s going to be 4 or 5 big banks left standing, the US government will make sure of that. They are encouraging any problem banks to be conjoined with the majors and all the bad stuff put into a lost and found bin for future generations to deal with, at least some of it.

Is your pension secure in how its positioned in this market, do you really know? According to the National Center for Employee Ownership , 10,000 employee stock ownership programs and stock bonus and profit sharing programs were “primarily invested in employer stock” with an estimated value of plan assets exceeding $928 billion and impacting 11.2 million workers. What if those programs are pressured to continue to deliver their payouts? Can you guarantee the payouts into your golden years? I hope you can, in fact I hope social security can continue to deliver as well but are you willing to bet they will? What is your recourse and what would you do to hedge against the loss of your pension? Have you considered a reverse mortgage?

The reverse mortage can work as a supplement to retirement income just as pensions and social security are currently providing and even if you are taking advantage of both now, you could increase your monthly cash flow through the use of a reverse mortgage and its many benefits. There are fees involved with originating the reverse just as there are fees with other large financial transactions (monthly insurance premiums, real estate commissions, annuity purchases, etc) so its often hard for folks to get beyond the costs involved with originating the reverse. Those closing costs, as most folks call them, are broken down into 3 components, 2% of the homes appraised value for mortgage insurance premium (if under FHA lending limit), another 2% for lender origination fee and the typical costs of conversion or closing costs. The total costs could run 5% of the homes value. The cost is inconsequential if it unlocks an opportunity to open access to significant amounts of liquidity that can increase quality of life issues that you are worried about.

Here’s an example: a 70 year old husband and wife in a $250,000 home in Kansas City could get up to $120,000 in a reverse mortgage. That money could be put into the credit line feature of the reverse mortgage and be worth $150,000 in five years or $187,000 in ten years. Can you guarantee that kind of growth in other investment vehicles? Or they could use it for whatever and whenever they needed it, to help with health care concerns, to remodel the home, to help pay off high interest credit cards or other debt, or anything they want. ANYTHING! Or if that same couple wanted to supplement their income with a lifetime payment, they would be able to get $750 a month for the rest of their lives as long as they lived in the home. That’s guaranteed regardless of their future home value and it helps provide the better quality of life we talked about.

Isn’t that what its really all about anyway, the quality of your life, the ability to maintain your dignity as a senior. You worked hard all your life, you own your home, you raised your familty here, you put alot into the system and if the system isn’t providing you all that you desire, you should be able to tap back into the thing that you worked so hard to maintain, your home’s equity. The reverse mortgage is a way to turn an illiquid asset into cash flow significant enough to change your life.

Its not a risk proposition, its your home, and its YOUR money.

See our other articles on how reverse mortgages work and if they are options for you:

“Why its never been a better time to get a reverse mortgage”

“Reverse mortgage rates come down”

“Leave them in a hole”

There’s a new player in the world of [tag]reverse mortgage[/tag] calculators and it looks like they have a product that offers some very useful and cool new features. ReverseVision has introduced a graphical reverse [tag]mortgage calculator[/tag] that really helps make the complex dynamics of reverse mortgage loans more understandable to the lay person.

The ReverseVision calculator initially looks and works much the same as the popular Netirement [tag]reverse mortgage calculators[/tag] found at [tag]AARP[/tag], [tag]Wells Fargo[/tag] and numerous other reverse mortgage lender sites. Data input screens are similar to these other calculators and, like the Netirement calculators, side-by-side loan comparisons are limited to the HUD [tag]HECM[/tag] and [tag]Fannie Mae[/tag] HomeKeeper products (Financial Freedom is not included). Numeric results in a few sample calculations came out close to the Netirement calculator results.

But the key value-added feature of ReverseVision’s reverse mortgage calculator are the chart tools. Especially useful is a dynamic pie chart that allows users to “play it forward” with their assumed loan scenarios in one-year or ten-year increments. With this tool, users get a clear graphic representation of how the allocation of loan receipts, fees, accrued interest, and other items change over the life of the loan.

For example, advancing forward one year at a time, you can easily see the point at which accrued interest owed on a hypothetical reverse mortgage loan exceeds the total funds paid out to you.

Perhaps the biggest criticism of the ReverseVision calculator is that it might provide too much information for casual users. For instance, in addition to the pie chart, there are multiple other charts available, some of which seem of limited use. As an example, information on a separate chart showing the decline in home equity over the loan’s life might be more useful if consolidated on the “play it forward” pie chart - as was done with information on rising home value.

Regardless, if you’re surfing the web trying to determine whether a reverse mortgage is right for you, the ReverseVision Graphical Calculator is definitely worth taking a look at.

HUD’s HECM Homepage - This is the U.S. Department of Housing and Urban Develoment reverse mortgage homepage and portal.

AARP’s Reverse Mortgage Calculator - This calculator provides approximate estimates for two nationally available reverse mortgage programs. These estimates do not reflect local cost variables.

Allied Home Mortgage - A nice calculator that provides a simple overview of the loan amount you might qualify for. Includes a slider bar that lets you easily see the impact of selecting a combination credit line/monthly payment option.

AARP Website - Reverse Mortgages - AARP has taken a leading role in providing consumer information about reverse mortgages. This site is their portal into their excellent web resources.

ReverseMortgage.org - This site is for consumers interested in learning more about reverse mortgages. The information provided on this site is provided by the National Reverse Mortgage Lenders Association (NRMLA).

National Center for Home Equity Conversion Mortgage (NCHEC) - Because it complements AARP’s basic consumer information, this NCHEC site may be particularly useful to nonprofit counselors, professional advisors, and any consumers or their family members looking for more information beyond the basics.

Financial Freedom Reverse Mortgage Calculator - Here is a simple way to get an estimate of how much money your client may receive from a reverse mortgage.

Financial Freedom - More seniors have chosen Financial Freedom than any other lender for their reverse mortgages. Financial Freedom focuses exclusively on reverse mortgages. We do not sell or promote any other financial products.

National Reverse Mortgage Lenders Assocation (NRMLA) - The National Reverse Mortgage Lenders Assocation (NRMLA) is a membership organization, based in Washington, DC for lenders, vendors, and other companies that originate, service and/or invest in reverse mortgages.

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