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Reverse Mortgage Loans

Reverse Mortgage Loans. Chris Grevelis Reverse Mortgage Specialist. What is a Reverse Mortgage?. It’s a home loan that borrows against your home’s equity to supplement your retirement with extra, tax-free funds.

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Reverse Mortgage Loans

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  1. Reverse Mortgage Loans Chris Grevelis Reverse Mortgage Specialist

  2. What is a Reverse Mortgage? • It’s a home loan that borrows against your home’s equity to supplement your retirement with extra, tax-free funds. • There are no monthly payments to make. You do not repay the loan for as long as your home remains your primary residence.

  3. What is a Reverse Mortgage cont. • Loan proceeds are determined by • Age of homeowner(s) • Value of home • Location of the home • Interest rate

  4. Age and Eligibility Requirements • You and any co-borrowers must be at least 62 years old. • Your home must be your primary residence.

  5. Age and Eligibility Requirements cont. • Any existing mortgages will be paid off with the Reverse Mortgage proceeds. • There are no income, employment or credit qualifying restrictions.

  6. Flexible Payment Options • 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)

  7. Flexible Payment Options cont. • You can receive an immediate cash advance in addition to monthly payments. • You can change payment plans as many times as you wish.

  8. Reverse Mortgage Repayment • No mortgage payments are required throughout the life of your Reverse Mortgage loan. • The loan may be repaid at anytime either in whole or in part and without penalty

  9. Repayment cont. • Partial repayment can be used to increase your monthly income payments • The outstanding loan balance, plus accrued interest, becomes due when you sell or vacate your home.

  10. Common Misconceptions • “The lender will take my house.” • Homeowner retains full ownership • Reverse mortgage is a loan • “I can be thrown out of my home.” • Homeowner can stay in the home forever

  11. Common Misconceptions cont. • “I can owe more than my home is worth.” • Homeowner can never owe more than the value of the home • “My heirs will be against it.” • Experience demonstrates that heirs are strongly in favor of reverse mortgages

  12. Frequently Asked Questions • Question: When must the loan be repaid? • 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.

  13. Frequently Asked Questions • Question: Will receiving my Reverse Mortgage proceeds in monthly payments affect my Social Security, Medicare supplemental security income, or Medicare benefits? • Answer: Social Security benefits and Medicare are generally not affected by a reverse mortgage. You should consult your tax advisor.

  14. Frequently Asked Questions • Question: Are there tax benefits to the borrower? • 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.

  15. Example 1: Hedge • 70 year widow needs to supplement her income by $8,800 per year (4% of her $220,000 portfolio) • Between March 2000 and October 2001, her portfolio declines 36% and is now $140,000 • $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.

  16. Solution • Secure a Reverse Mortgage giving her $109,178 in a line of credit • Draw $8,800 a year from her credit line rather than her investment portfolio • Allow her investment portfolio to recover

  17. The Results • By 2006 her portfolio has recovered to $270,000 • She is able to discontinue supplementing from her Reverse Mortgage credit line • Resumes 4% payments from her investment portfolio

  18. Example 2: Fund LTC/Life Combo Situation • 65 year old couple • $300K home • Minimal portfolio assets • Desires to leave an estate Problem • Statistically one spouse will require Long Term Care • Risk is high: the estate will be depleted

  19. Solution • Establish Reverse Mortgage Credit Line & Fund • “Shared LTC” Policy • 4 years protection for either spouse • Cost = 1/3 less than individual policies • $4,960 per year • “Second to Die” Life Policy • Amount = $500K death benefit • Cost = $5,880 per year • Total Annual Credit Line Withdrawals: $10,840

  20. Questions

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