The New Tool For Retirement Income Planning. Presented by: Becky Bell, Regional VP, Mortgage Banking

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1 The New Tool For Retirement Income Planning Presented by: Becky Bell, Regional VP, Mortgage Banking

2 Why Consider a Reverse Mortgage? Allows Clients to Take a Dormant Asset (Home Equity) and Put it to Work Without Changing Their Lifestyle or Impacting Retirement Savings 2

3 What is a Reverse Mortgage? A federally insured tool that allows homeowners 62+ to convert an illiquid asset into tax-free cash that can be used for anything Non-Recourse borrower or heirs will never be required to repay more than what the home is worth No monthly mortgage payments Home does not have to be owned free and clear Loan can be repaid any time Loan can last until the last title holder dies, permanently moves out or sells Borrower retains full title and ownership Proceeds received do not affect Social Security or Medicare benefits (although they may impact SSI or Medicaid eligibility) Through March 2013 over 800,000 customers have chosen a Home Equity Conversion Mortgage 3

4 HECM Overview How Does it Work? 4

5 Fixed vs. ARM Products Benefits Consistent rate for the life of the loan Rate adjusts monthly or annually, depending on market conditions Proceeds can be issued in one lump sum Proceeds can be issued in a monthly check Proceeds can be issued in a line of credit Fixed Rate Mortgage Adjustable Rate Mortgage 5

6 How Does the Credit Line Work? The credit line actually GROWS and subsequently increases the client s borrowing capacity over time Growth rate = Interest + Monthly MIP charged on the loan No interest is charged until the funds are drawn out. Unlike a HELOC, the credit line cannot be frozen or closed out by the lender. Funds can be drawn from the line of credit at the borrower s discretion. Only available on an ARM product 6

7 Product Evolution Addresses High Costs Origination Fee Initial MIP Service Fee Set Aside Principal Limit Rate Options Historical HECM Standard 2%, no max 2% Funds $25-35/mo Full Fixed, ARM Current HECM Standard Current HECM Saver 2% to $200K+ 1% over $200K Max $6k 2% to $200K+ 1% over $200K Max $6k 2% 0 Full ARM only 0.01% 0 Reduced Fixed, ARM How Do the Products Compare? Example: $200,000 home, borrower age 71, ARM product Rates as of 6/8/2013 Origination MIP Closing Costs Amount Available HECM Standard $2500 $4000 $3352 $125,547 HECM Saver $2500 $ 20 $3352 $104,927 7

8 Mary Case Study #1 Age 78, widow Receives $3,250 in monthly income. Needs $4,250/month for living expenses. Drawing $1,000 per month extra from her savings of $50,000. Does not want to change her lifestyle. Does not want to sell the home she loves. There is currently no mortgage on the property. Has less than 5 years before savings is depleted. 8

9 EXAMPLE #1 Mary has a $420,000 Home $420,000 Home $5000 Initial Draw $1004 Monthly Draw ($12,055/year) to Age 90 (12 years) HECM Standard Product A - Credit line available grows from $171,000 to $338,136 in 12 years B - Equity estimate increases to $424,360 even after drawing $149,660 C - Personal savings safety net $50,000 is maintained D - In year 12 customer can begin drawing $1000/mo from the $338,136 credit line to supplement income to age 118 Bottom Line: Instead of running out of money at 82, client increases liquidity for life and remains in the home she loves 9

10 EXAMPLE #1: $420,000 home, $5000 initial draw, $1004/mo draw ($12,055/yr) to age 90, HECM Standard FHA Mortgage Insurance Premium Interest A Year Age Cash Advance Loan Balance Remaining Credit Line Principal Limit Home Value Equity Remaining Cumulative Withdrawal Personal Savings 0 78 $5,000 $0 $0 $20,391 $171,000 $296,520 $420,000 $399,609 $5,000 $50,000 $449,609 $221,000 $171,000 D Net Worth (Savings + Equity) A - Credit line grows from $171,000 to $338,136 in 12 years B - Equity increases by $4,360 even after drawing $149,660 C - Personal savings safety net is maintained D - In year 12 customer can begin drawing $1000/mo from the $338,136 credit line to supplement income to age 118 Liquid Funds (Savings + Credit Line) 1 79 $12,055 $332 $1,227 $34,005 $180,997 $313,855 $436,800 $402,795 $17,055 $50,000 $452,795 $230, $12,055 $507 $1,849 $48,416 $191,578 $332,203 $454,272 $405,856 $29,110 $50,000 $455,856 $241, $12,055 $692 $2,507 $63,670 $202,778 $351,623 $472,443 $408,773 $41,165 $50,000 $458,773 $252, $12,055 $887 $3,204 $79,817 $214,632 $372,179 $491,341 $411,524 $53,220 $50,000 $461,524 $264, $12,055 $1,095 $3,941 $96,908 $227,179 $393,937 $510,994 $414,086 $65,275 $50,000 $464,086 $277, $12,055 $1,314 $4,722 $114,999 $240,460 $416,967 $531,434 $416,435 $77,330 $50,000 $466,435 $290, $12,055 $1,546 $5,548 $134,149 $254,518 $441,343 $552,691 $418,542 $89,385 $50,000 $468,542 $304, $12,055 $1,792 $6,423 $154,419 $269,397 $467,144 $574,799 $420,380 $101,440 $50,000 $470,380 $319, $12,055 $2,052 $7,349 $175,875 $285,146 $494,453 $597,791 $421,916 $113,495 $50,000 $471,916 $335, $12,055 $2,327 $8,329 $198,587 $301,816 $523,359 $621,703 $423,116 $125,550 $50,000 $473,116 $351, $12,055 $2,619 $9,366 $222,627 $319,460 $553,955 $646,571 $423,944 $137,605 $50,000 $473,944 $369, $12,055 $2,927 $10,464 $248,074 $338,136 $586,339 $672,434 $424,360 $149,660 $50,000 $474,360 $388,136 $338,136 B Assumes initial interest 2.835%, expected rate 4.445%, 4% home price appreciation C 10

11 EXAMPLE #2 Mary has a $200,000 Home $200,000 Home $5000 Initial Draw $1006 Monthly Draw ($12,072/year) to Age 90 HECM Standard Product A - Credit line grows from $21,000 to $41,426 in 12 years B - Equity decreases by $102,018 despite withdrawing $149,864 C - Personal savings safety net is maintained D - In year 12 customer can begin drawing $1000/mo from the $41,426 credit line to supplement income to age 93, then savings can supplement to age 97 Bottom Line: Instead of running out of money at 82, client can cash flow to age 97 and remains in the home she loves 11

12 EXAMPLE #2: $200,000 home, $5000 initial draw, $1006/mo draw ($12,072/yr) to age 90, HECM Standard Year Cash Advance FHA Mortgage Insurance Premium Interest Loan Balance A Remaining Credit Line Principal Limit Home Value Equity Remaining Cumulative Withdrawal Personal Savings Net Worth (Savings + Equity) Liquid Funds (Savings + Credit Line) Age 0 78 $5,000 $0 $0 14,757 $21,000 $141,200 $200,000 $185,243 $5,000 $50,000 $235,243 $71, $12,072 $260 $966 28,062 $22,223 $149,425 $208,000 $179,938 $17,072 $50,000 $229,938 $72, $12,072 $431 $1,571 42,141 $23,518 $158,129 $216,320 $174,179 $29,144 $50,000 $224,179 $73, $12,072 $611 $2,211 57,042 $24,888 $167,340 $224,973 $167,931 $41,216 $50,000 $217,931 $74, $12,072 $802 $2,888 72,811 $26,337 $177,087 $233,972 $161,161 $53,288 $50,000 $211,161 $76, $12,072 $1,005 $3,605 89,500 $27,871 $187,402 $243,331 $153,831 $65,360 $50,000 $203,831 $77, $12,072 $1,219 $4, ,162 $29,495 $198,319 $253,064 $145,902 $77,432 $50,000 $195,902 $79, $12,072 $1,446 $5, ,853 $31,213 $209,871 $263,186 $137,333 $89,504 $50,000 $187,333 $81, $12,072 $1,685 $6, ,634 $33,031 $222,095 $273,714 $128,080 $101,576 $50,000 $178,080 $83, $12,072 $1,939 $6, ,568 $34,995 $235,032 $284,662 $118,094 $113,648 $50,000 $168,094 $84, $12,072 $2,208 $7, ,722 $36,991 $248,723 $296,049 $107,327 $125,720 $50,000 $157,327 $86, $12,072 $2,492 $8, ,168 $39,146 $263,211 $307,891 $95,723 $137,792 $50,000 $145,723 $89, $12,072 $2,793 $9, ,981 $41,426 $278,543 $320,206 $83,225 $149,864 $50,000 $133,225 $91,426 D B Assumes expected rate 4.445%, 4% home price appreciation C A - Credit line grows from $21,000 to $41,426 in 12 years B - Equity decreases by $102,018 despite withdrawing $149,864 C - Personal savings safety net is maintained D - In year 12 customer can begin drawing $1000/mo from the $41,426 credit line to supplement income to age 93, then savings can supplement to age 97 12

13 Mary s Options Selling vs. HECM Summary Funds through age Sell home now, use $200,000 proceeds and $50,000 savings $200,000 Home Value Use Reverse Mortgage + $50,000 Savings $420,000 Home Value Sell home now, use $420,000 proceeds and $50,000 savings Use Reverse Mortgage + $50,000 Savings Housing Rental Home Rental Home Net worth at age 90 Liquid assets at age 90 $ 8,579 $133,225 $228,579 $474,360 $ 8,579 $91,426 $228,579 $388,136 Assumes ability to rent housing at net cost $500/mo, COL and inflation increases of 1.7% 13

14 Bill and Susan Case Study #2 Bill and Susan, age 65, live a comfortable life. Their $450,000 home is free and clear. They have been good savers through their working years and built a nest egg in IRAs and 401Ks of over $1,000,000. Now they are ready to retire and plan to live on a pension of $80,000/year and a $3000/month withdrawal from retirement savings. Since their retirement savings is in tax deferred accounts they will pay income taxes on any withdrawals. They are delaying Social Security benefits to age 70 14

15 Bill and Susan Client Case Study #2 Total taxable income is $116,000 In a 25% marginal tax bracket their taxes would be $20,860 Without Reverse Mortgage With Reverse Mortgage Total Retirement Income 116, ,000 Non-taxable income 0 36,000 Taxable Income 116,000 80,000 Taxes: $0-17,800 (10%) 1,780 1,780 $17,800-72,500 (15%) 8,205 8,205 over $72,500 (25%) 10,875 1,875 Total Taxes Due: 20,860 11,860 Annual Tax Savings 9,000 Tax savings = $9,000/year They pay less tax and stretch their portfolio even further 15

16 Borrower Requirements Youngest homeowner must be at least 62. Borrower must permanently reside in the home at time of application. Borrower must maintain the home, pay property taxes and keep homeowners insurance in place. No income, credit score or asset requirements. Borrowers must receive HUD approved counseling 16

17 Other Requirements Home must be a single family home or 1-4 unit home that meets FHA standards and quality. All other property liens must be paid. Borrower can own other homes but can only have one FHA mortgage. An appraisal must be completed by an independent FHA approved appraiser 17

18 Why Waiting Is NOT A Good Strategy : Housing Market Tumbles 2009: HUD Reduces Principal Limit Factors (PLF) 4/2013 HUD Eliminates Fixed Rate Standard : Potential HUD Changes Reduce PLFs Tax and Insurance Set Asides Financial Assessment Always possible: Rising Interest Rates Today Even Though Age May Increase External Factors Can Reduce Funds Available to Your Clients Over Time 18

19 When is a Reverse Mortgage Right? Clients want to improve portfolio survival rates. Clients need time to allow portfolios to recover before liquidating assets. Clients want to delay taking Social Security to increase their monthly benefit. Clients want to decrease taxable income 19

20 When is a Reverse Mortgage Right? Clients want to maintain their nest egg but don t have sufficient cash flow without tapping it. Clients want to redirect funds from a mortgage payment to retirement savings. Clients want to minimize capital gains tax consequences. 20

21 What Else Can You Do With A HECM? Pay down higher cost debt. Supplement retirement income that hasn t kept up with inflation. Fund long term care and medical expenses when uninsured or underinsured. Fund estate plans and lower the value of an estate by disbursing tax free funds before death. 21

22 What Else Can You Do With A HECM? Remodel the family home to make it more suitable for aging in place, with no additional monthly payments. Make a donation to a favorite charity or university without impacting the portfolio or incurring additional taxes on liquidated assets. Fund a large living benefit without reducing lifestyle today. Pay for a child s or grandchild s college education - advance inheritance proceeds estate tax-free to grand children, allowing the parents to reposition college funding assets toward their own retirement. 22

23 When is a Reverse Mortgage Not Right? When the customer does not expect to stay in the home for at least 3-5 years. When the customer will struggle to pay ongoing home costs even after receiving HECM proceeds maintenance, insurance, taxes. When the home is not suitable to age in place. When Medicaid eligibility or Supplemental Security Income (SSI) may be impacted. 23

24 What Happens When the Loan Ends Loan is due when the last borrower no longer lives in the home or decides to sell it. If the borrower sells the home they retain any equity above the loan balance. If heirs want to retain the home, they can purchase it based on the current appraised value or loan amount (which ever is less). If heirs sell the home, they repay the loan amount (up to the appraised value) and keep any remaining equity. 24

25 Why One Reverse Mortgage? One Reverse Mortgage Is the LARGEST reverse mortgage lender in America*. Is licensed in all 50 states (currently operating in 47). Has a team of 125+ Licensed Mortgage Professionals that are trained and experienced to work with seniors. Has the capacity to assist over 10,000 reverse mortgage clients a year. Provides the highest level client service our 98% satisfaction rating is proof! 25

26 Landing Page 26

27 Partner and Client Experience An easy to use site will allow you to enter your client s information. Your clients can easily do this as well or they can simply call! 27

28 Have more Reverse Mortgage questions? Becky Bell