Wednesday, April 2, 2008
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
Thursday, October 4, 2007
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
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