Using Home Equity as a Retirement Asset: Reverse Mortgage Basics

Transcription

1 Usig Home Equity as a Retiremet Asset: Reverse Mortgage Basics <Compay logo goes here>

2 Thak you for explorig your reverse mortgage optios with <Compay Name>. We ve created this itroductory guide to help get you started o learig more about this versatile retiremet fiacig tool. For expert guidace that s tailored to your idividual eeds ad cocers, we ecourage you to talk to your <Compay Name> <loa officer title>. He or she will aswer all your questios, give you detailed calculatios, ad help you make welliformed decisios that are i your best iterests. Why should I cosider a reverse mortgage? Your retiremet fuds may come from savigs, ivestmet icome, ad Social Security. But ow, there s aother source that may help you complete the logevity plaig puzzle. Reverse mortgages are becomig icreasigly recogized by homeowers ad fiacial advisors as a smart ad safe way to access a importat retiremet asset: home equity. Most reverse mortgages are govermetisured Home Equity Coversio Mortgages (HECMs). You will ofte hear the terms used iterchageably. Available exclusively to people age 62 ad older, a reverse mortgage could help you live more comfortably ad be more fiacially prepared for the future. For example, you ca use a reverse mortgage to: Avoid sellig ivestmets at a loss i a dow market Establish a stad-by lie of credit that you ca tap as eeded. Ulike a traditioal Home Equity Lie of Credit (HELOC), a reverse mortgage lie of credit caot be reduced or revoked, as log as the terms of the loa are met. Ad the uused lie of credit grows over time. Supplemet retiremet icome with tax-free* fuds Delay collectig Social Security, for a larger mothly beefit 2

3 Pay for medical or log-term care costs Fiace the purchase of a more suitable home, with o mothly mortgage paymets** Amog the beefits of a reverse mortgage: The ability to use your home equity to help you maitai a more comfortable stadard of livig, i your ow home. Tax-free* loa proceeds you ca use however you choose. Great flexibility. You ca choose to take your proceeds as a lie of credit; mothly advaces for a set period of time; a mothly stream of fuds for as log as you live i your home; a lump sum; or a combiatio of these optios. No mothly mortgage paymets. If you qualify ad have a existig mortgage, home equity loa or ay other type of debt, you ca pay it off ad reduce your mothly expeses. + Or, if you ow your home free-ad-clear, you ca get the additioal fuds you eed with o miimum mothly repaymets required. (As the homeower, you remai resposible for payig property taxes, homeowers isurace, ad homeower s associatio dues if applicable.) *Not tax advice. Cosult a tax professioal. **If the borrower does ot meet loa obligatios, such as keepig curret with property taxes ad required isurace, the the loa will eed to be repaid. + Your reverse mortgage proceeds will first be used to pay off ay existig mortgage balace(s) ad/or federal debt. 3

4 Am I eligible? To be eligible for a reverse mortgage, you must: Be at least 62 years old Live i the home as your primary residece Have sufficiet home equity. Cotact Becky Kootz at Frost Mortgage Bakig Group to fid out if you have eough home equity to qualify. Not be deliquet o ay federal debt Participate i a cosumer iformatio sessio held by a idepedet couselor who s approved by the U.S. Departmet of Housig ad Urba Developmet (HUD) Also, your home must: eet FHA (Federal Housig Admiistratio) M property stadards ad flood requiremets Be oe of the followig property types: Sigle-family home wo- to four-uit home with oe uit T occupied by the borrower HUD-approved codomiium How much moey ca I get? This depeds upo a umber of factors, icludig the age of the yougest borrower, your home value, the amout of equity, FHA ledig limits, the curret iterest rate, ad the reverse mortgage product ad paymet optio you choose. If you have a existig mortgage, your reverse mortgage will first be used to pay that off. Becky Kootz at Frost Mortgage Bakig Group ca provide you with a quote that s tailored to your specific situatio, with o cost or obligatio. 4

5 Takig ad Usig Your Proceeds The followig chart shows some commo uses for a reverse mortgage, ad how you might wish to take your proceeds, depedig o how you pla to use them. Talk to Becky Kootz at Frost Mortgage Bakig Group to help determie the best course of actio for you. Lie of Credit Term (Mothly advaces for a set period) Teure (Mothly advaces for as log as you live i your home) Lump Sum I would like to Establish a stadby cash reserve that will be there whe I eed it 4 Supplemet my mothly icome with a steady stream of fuds 4 4 Delay takig Social Security, for a larger mothly beefit 4 4 Make home modificatios or repairs 4 4 Pay off my existig mortgage or other debts, to reduce mothly expeses 4 Buy a home that better fits my lifestyle 4 5

6 Case Studies Followig are just two sample scearios that show how a reverse mortgage ca be a smart retiremet plaig tool. Supplemet Mothly Icome & Establish a Safety Net The Situatio: Mary ad Joh, both age 70, have a appraised home value of $300,000 ad o mortgage. They have saved well for retiremet, but could use some extra fuds for mothly expeses. They d also like to establish a cash reserve that will give them easy access to additioal fuds should they eed them, to avoid dippig ito ivested assets that are a source of icome. The Solutio: Mary ad Joh qualify for $156,450 i reverse mortgage fuds. They opt to receive $500 per moth, for as log as they live i their home. This helps offset their daily expeses ad healthcare costs. After $80,445 are set aside to cover the lifetime advaces (kow as teure paymets ), this leaves them with a additioal $76,005 that they take as a lie of credit, which they ca draw upo as eeded. As a added beefit, the uused lie of credit grows over time, regardless of home value providig more available fuds. If their expeses icrease i the future, they ca chage the amout of the teure paymets (thereby reducig the lie of credit); or they ca draw fuds from their credit lie. Illustratio is for educatioal purposes oly ad assumes a borrower age 70 who resides i Califoria ad a adjustable iitial iterest rate of 2.403% with a margi of 2.250%, ad fiaced fees i the amout of $8, Note: Rates may icrease for adjustable rate loas. Rate quote geerated o 04/09/2014. Rates are subject to chage. 6

7 Delay Social Security for a Larger Mothly Beefit The Situatio: Joh, age 62 ad curretly earig $80,000 per year, wats to delay collectig Social Security to age 66, which will icrease his mothly beefit from $1,426 to $2,186. He has a appraised home value of $300,000 ad o mortgage. The Solutio: Joh qualifies for $145,065 i reverse mortgage fuds. He decides to take term paymets i the amout eeded to bridge the Social Security gap which is $68,448 (at $1,426 per moth x 48 moths). He opts to keep the remaiig fuds available as a lie of credit, which he plas to treat as a cash reserve for emergecies ad future eeds. Durig the first year of his reverse mortgage, he ca access a lie of credit i the amout of $66,993. After the first year, he ca access a additioal $17,491, for a total of $84,484 plus iterest growth o ay uused lie of credit fuds. Illustratio is for educatioal purposes oly ad assumes a borrower age 62 who resides i Califoria ad a adjustable iitial iterest rate of 2.403% with a margi of 2.250% with fiaced fees i the amout of $7, Note: Rates may icrease for adjustable rate loas. Rate quote geerated o 04/09/2014. Rates are subject to chage. 7

8 How is a reverse mortgage differet tha a traditioal Home Equity Lie of Credit (HELOC)? A reverse mortgage lie of credit offers several distict advatages over a HELOC: Greater flexibility i repaymet o mothly mortgage paymets are required As log as the terms of the loa are met, a reverse mortgage lie of credit caot be froze, reduced or revoked by the leder The uused lie of credit grows over time givig you more available fuds How ad whe does a reverse mortgage eed to be repaid? As log as the terms of the loa are met, a reverse mortgage does ot have to be repaid util the home is o loger the primary residece of at least oe borrower, or the home is sold. Usually, the last survivig borrower or their estate sells the home to repay the loa. It ca also be repaid i cash from ay source, such as other assets, proceeds from a life isurace policy or a loa refiace. Oce repaid, ay remaiig equity belogs to you or your estate, ad ca be trasferred to heirs. I ay case, o debt is passed alog to your heirs. What are the costs associated with a reverse mortgage? I additio to iterest, the costs ca iclude a property appraisal fee, origiatio fee, closig costs, mortgage isurace premium, servicig fee ad a modest charge for idepedet couselig. While closig costs vary based upo the type ad size of the loa, they re similar to those for ay traditioal mortgage. You ca roll most of the up-frot costs ito the loa, so out-of-pocket expese ca be miimized. Ad you ca reduce your costs by takig a lower amout of proceeds that are available to you. We will give you a detailed cost breakdow, ad explai the differet iterest ad pricig optios that you ca choose from. 8

9 A reverse mortgage ca eve help you buy a home that better suits your lifestyle. Istead of payig all cash or takig out a traditioal mortgage, you ca fiace part of the purchase price usig a reverse mortgage so there are o mothly mortgage paymets. This ca help you to: Sped less moey out of pocket. Preserve more of your savigs, istead of spedig it o your home. Get more home for your moey. A reverse mortgage could help you to more comfortably afford upgrades, or a more expesive home. Right-size your home, relocate to a more suitable eighborhood, or move closer to family. 9

10 What Researchers ad the Media Are Sayig About Reverse Mortgages Joural of Fiacial Plaig: The three legs of the traditioal retiremet stool (Social Security beefits, pesios, ad persoal savigs) have bee cosiderably weakeed...curret ad future retirees eed to re-examie their views ad cosider icludig a reverse mortgage as a part of their retiremet pla. David W. Johso, Ph.D., ad Zamira S. Simkis, Ph.D., Retiremet Treds, Curret Moetary Policy, ad the Reverse Mortgage Market, 2014, Joural of Fiacial Plaig 27 (3) Bosto College Ceter for Retiremet Research: Accessig home equity will become icreasigly importat i a world where retiremet eeds are expadig. People are livig loger ad face rapidly risig health care costs ad the retiremet system is cotractig Social Security replacemet rates are decliig ad employer-provided pesios have shifted from defied beefit plas to 401(k)s where balaces are modest. Reverse mortgages offer a mechaism for tappig home equity for those who wat to stay i their home. Alicia H. Muell ad Steve A. Sass, The Govermet s Redesiged Reverse Mortgage Program, Jauary 2014 Wall Street Joural: Some fiacial advisers thik that eve relatively affluet retirees could beefit from reverse mortgages usig them as a icome stream that could help them lower their tax bills or avoid ill-timed sales of other ivestmets. Matthew Heimer, Retirees Get Creative with Reverse Mortgages, August 19, 2013 Jae Bryat Qui: I ve got a fiacial proposal that is probably goig to surprise you. Take out a reverse mortgage at age 62, eve though you do t eed the moey. I fact, take it especially if you do t eed the moey. There will ever be a better time A Great Reverse Mortgage Idea: Take a Credit Lie Now, August 15, 2013 The New York Times: May baby boomers will eed to cosider how their homes ad the value locked iside will help fiace their retiremet years. Reverse mortgages... could become a itegral part of may retirees fiacial plas, especially those who are short o cash but do ot wat to move. Tara Siegel Berard, Rules for Reverse Mortgages May Become More Restrictive, July 12,

11 The loa process is easy. Ad we ll assist you every step the way. As you explore your reverse mortgage optios with Frost Mortgage Bakig Group, a licesed Loa officer will serve as your guide through the etire loa process. Here s a basic overview of what you ca expect. To lear more, cotact us today. Step 1: Educatio Your Frost Mortgage Bakig Group Loa officer will help you determie if a reverse mortgage is the right solutio for you ad if so, which type best fits your eeds ad goals. To help you make a iformed decisio, we ll aswer all your questios, assess your idividual eeds ad fiacial situatio, thoroughly explai everythig, ad prepare you for your idepedet couselig sessio. We ecourage you to iclude your family members ad trusted advisor(s) i your decisio-makig. Step 2: Idepedet Couselig To esure that you uderstad all aspects of a reverse mortgage, you re required to have a sessio with a idepedet couselor who s approved by the U.S. Departmet of Housig ad Urba Developmet (HUD). It usually takes about 60 to 90 miutes, ad ca be doe i-perso or over the phoe. (Some states require face-to-face couselig.) Step 3: Applicatio Your Loa officer will help you complete the applicatio ad collect your documetatio. He or she will let you kow exactly which documets you ll eed to provide. Step 4: Property Appraisal, Loa Processig ad Approval Your Loa officer will submit the paperwork ad we ll process your applicatio. We ll order a home appraisal, which determies the exact value of your home. We ll also order title work ad existig mortgage payoff amouts. A uderwriter will the review your applicatio for approval. Step 5: Closig Oce the loa is approved ad fial documets are ready for your sigature, we ll cotact you to schedule your loa closig, which ca take place at your home. Ay existig mortgage(s) will be paid off with a portio of the proceeds from your reverse mortgage. After the closig ad ay applicable rescissio period, the loa will fud ad you ll receive your moey. 11

12 <Compay Logo> <Compay Street address> <City, State ZIP> <Compay Phoe> <Compay > <Compay Website> This material is ot from HUD or FHA ad has ot bee approved by HUD or ay govermet agecy. FHA isures fixed iterest rate Home Equity Coversio Mortgages (HECMs), as well as aual ad mothly adjustable iterest rate HECMs. Fixed iterest rate mortgages are limited to the Sigle Disbursemet Lump Sum paymet optio where there is a sigle, full draw at loa closig ad the mortgage does ot provide for future draws by the mortgagor uder ay circumstaces. Adjustable iterest rate mortgages provide for five, flexible paymet optios ad allow for future draws. The disbursemet of mortgage proceeds durig the first 12-moth disbursemet period is subject to a iitial disbursemet limit as determied by requiremets set by the Secretary. <Compay disclosures>