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Friday, October 5, 2007

Basics Glossary of Reverse Mortgage Terms

203-b limit - the dollar limit in each county for how much of a home's value can be used to determine the amount of money you can get from a federally insured HECM reverse mortgage; the name comes from Section 203-b of the National Housing Act AARP model specifications - rules recommended by AARP for analyzing and comparing reverse mortgages.

Acceleration clause - the part of a contract that says when a loan may be declared due and payable.

Adjustable rate - an interest rate that changes, based on changes in a published market-rate index

Annuity - a monthly cash payment you get from an insurance company for the rest of your life.

Appraisal - an estimate of much a house would sell for if it were sold; also called its market value.

Appreciation - an increase in a home's value

Area Agency Area Agency on Aging (AAA) - a local or regional nonprofit organization that provides information on services and programs for older adults

Cap - a limit on the amount an adjustable interest rate may go up or down during a specified time period

Closing - a meeting where documents are signed to "close the deal" on a mortgage; the time a mortgage begins

Condemnation - a court action saying a property is unfit for use: also, the government taking private property to use for the public by the right of eminent domain

Credit line - a credit account that lets a borrower decide when to take money out and also how much to take out; also known as a "line-of-credit" or "credit line."

Current interest rate - in the HECM program, the interest rate currently being charged on a loan; it equals the one-year rate for U.S. Treasury Securities, plus a margin (see below)

Deferred payment loans (DPLs) - reverse mortgages that give you a lump sum of cash to repair or improve a home; usually offered by state or local governments

Depreciation - a decrease in the value of a home

Eminent domain - the right of a government to take private property for public use; for example, taking private land to build a highway

Expected interest rate - in the HECM program, the interest rate used to determine a borrower's loan advance amounts; it equals the 10-year rate for U.S. Treasury Securities, plus a margin

Fannie Mae - a private company that buys and sells mortgages; a government-sponsored business that is watched over by the federal government

Federal Housing Administration (FHA) - the part of the U. S. Department of Housing and Urban Development (HUD) that insures HECM loans

Federally insured reverse mortgage - a reverse mortgage guaranteed by the federal Government so you will always get what the loan promises; also, a Home Equity Conversion Mortgage (HECM)

Fixed monthly loan advances - payments of the same amount that is made to a borrower each month

Home equity conversion - turning home equity into cash without having to leave your home or make regular loan repayments

Home Equity Conversion Mortgage (HECM) - the only reverse mortgage program insured by the Federal Housing Administration, a federal government agency

Initial interest rate - in the HECM program, the interest rate that is first charged on the loan beginning at closing; it equals the one-year rate for U.S. Treasury Securities, plus a margin

Leftover equity - the sale price of the home minus the total amount owed on it and the cost of selling it; the amount the homeowner or heirs get when the house is sold.

Loan advances - payments made to a borrower, or to another party on behalf of a borrower

Loan balance - the amount owed, including principal and interest; capped in a reverse mortgage by the value of the home when the loan is repaid.

Lump sum - a single loan advance at closing

Margin - in the HECM program, the amount added to the one-year Treasury rate to determine the initial and current interest rates, and to the 10-year Treasury rate to determine the expected interest rate

Maturity - when a loan must be repaid; when it becomes "due and payable"

Medicaid- a program of medical aid designed for those unable to afford regular medical service and financed by the state and federal governments

Mortgage - a legal document making a home available to a lender to repay a debt

Non-recourse mortgage - a home loan in which the borrower can never owe more than the home's value at the time the loan is repaid

Origination - the process of setting up a mortgage, including preparing documents

Property tax deferral (PTD) - reverse mortgages that pay annual property taxes; usually offered by state or local governments

Proprietary reverse mortgage - a reverse mortgage product owned by a private company

Reverse annuity mortgage - a reverse mortgage in which a lump sum is used to purchase an annuity that gives the borrower a monthly income for life.

Reverse mortgage - a home loan that gives cash advances to a homeowner, requires no repayment until a future time, and is capped by the value of the home when the loan is repaid

Right of rescission - a borrower's right to cancel a home loan within three business days of the closing

Servicing - administering a loan after closing, such as maintaining loan records and sending statements

Shared equity - an itemized loan cost based on a percent of a home's value at loan maturity; for example, a 5% shared equity fee on a home worth $200,000 at maturity would be $10,000

Supplemental Security Income (SSI) - a federal monthly income program for low-income persons who are aged 65+, blind, or disabled

Tenure advances - fixed monthly loan advances for as long as a borrower lives in a home

Term advances - fixed monthly loan advances for a specific period of time

Total Annual Loan Cost (TALC) rate - the projected annual average cost of a reverse mortgage including all itemized costs T-rate - the rate for U.S. Treasury Securities; used to determine the initial, expected, and current interest rates for the HECM program

Uninsured reverse mortgage - a reverse mortgage that becomes due and payable on a specific date

Clip from NBC News

This was a aired on NBC News
video

Thursday, October 4, 2007

Tomorrow HECUM Reverse Mortgage

Technorati Profile

Jumbo Reverse Mortgages

Jumbo Reverse Mortgages

Increase your income without eroding your savings!
Are you living the retirement you planned for?
• Even if you saved and invested diligently,
today’s low interest rates along with higher
prices for life’s “necessities” can be robbing
you of your golden years!
• A typical “CD” will pay you 2.5 percent –
and then you have to pay taxes on it!

Have you considered…

• You may have found that in order to
survive on a “minimum cash income”
you may have had to tap the principal
of your hard-earned savings or even live
well below the standards of living you
had planned for!
• There is a program available that will
provide you with “tax-free income”
without touching the principle or
interest earned on your savings!

What if I have $500,000?
Even if you have saved half a million dollars,
that still doesn’t get you far today!

What does a “typical” budget look like?
Savings: $500,000
CD Interest: $12,500
Social Security: $20,000

Total Income: $35,000

Taxes: $5,000
Home Maintenance: $5,000
Property Taxes: $5,000
Medical Expenses: $10,000
Utilities: $3,500
Car Maintenance/
Upkeep/Insurance: $4000
Food: $7,000

Total Expenses: $39,500
Net yearly cash flow – MINUS $7,000

Even if you are “just getting by” you are
eroding your savings!

What Does a Gallon of Gas Cost?
What About a Pound of Lean Hamburger?
What About a Pound of Lean Hamburger?

$2.50 $5.00


$2.00
$1.50
$1.00
$ .50
$ 0

$25,000
$20,000
$15,000
$10,000
$ 5,000
$ 0


Ten Years Today
Ago

A New Car?


Ten Years Today
Ago

$4.00
$3.00
$2.00
$1.00
$ 0

$10.00
$ 8.00
$ 6.00
$ 4.00
$ 2.00
$ 0


Ten Years Today
Ago

A Movie Ticket?


Ten Years Today
Ago


What does
all this mean?

• Even if you have saved a substantial
amount of money, the ravages of inflation
coupled with today’s low interest rates
are “eating away” the safety margin you
need to provide security in your “Golden
Years”!
• However, real estate generally rises in
price faster than inflation, so living off of
the equity in your home rather than the
savings can help you beat inflation!

A Reverse Mortgage
Can Help!


• A Reverse Mortgage can help provide the
safety margin you need to live comfortably
without eroding your hard-earned savings!
• The value of your home rises “tax-free”, in
contrast to CD or bond interest which you
have to pay taxes on.
• On average, a home increases in value at
4.6% annually.

Comparison:
CD’s vs.
Home Equity

$500,000 $500,000
CD Home Equity
Average Yield: 2.5% 4.3%
Annual Income: $12,500 $21,500
Taxes: $3,500 $0
“After Tax” Income: $9,000 $21,500
“After Tax Yield”: 1.8% 4.3%

When taking tax effects into account, using home equity growth
to finance retirement results in a 140% increase in yield!

*assumes 28% total taxation including State & Federal taxes


What’s The Difference?

This example assumes $500,000 in savings and a $750,000 home. Living off savings, withdrawing $30,000
annually in today’s dollars, you will have depleted your savings by almost $275,000 in ten years.

However, if you finance retirement through the cash account, your home equity will have dwindled by less
than $50,0000 during the same period, assuming average home appreciation.*

*This example assumes 2.75% return on savings, 3% inflation, 4.6% home appreciation, and a 6% interest rate on cash account loans. It also assumes a
28% tax bracket (state, local and federal taxes)

How Can I Use the Proceeds From My Reverse Mortgage?

Any Way You Want – Including:

• Making home improvements
• Day-to-day living expenses
• Helping provide for grandchildren’s education
• Taking a long-needed vacation
• Purchasing a long-term-care insurance policy to
protect yourself and your family
• Paying off an existing mortgage or credit card debt