How HECMs Work. Prepared by Genworth. Reverse Mortgages: A Financial Planning Tool

Transcription

1 How HECMs Work Prepared by Genworth Reverse Mortgages: A Financial Planning Tool

2 What is a HECM? A Home Equity Conversion Mortgage (HECM) is a FHA-insured non-recourse loan that allows homeowners, age 62 or older, the ability to convert home equity into cash, supplement monthly income, or credit line. 2 *Not all products and payment options available in all states or on all products.

3 HECM Difference Lower Upfront Costs 3 *Above numbers are calculated from current interest rate at time of printing.. Consult your Reverse Mortgage Advisor for current market rates that may apply. Source: Genworth Financial Home Equity Access, Quote Packages August 8, 2012.

4 How much money will a HECM provide? Example: $500,000 Home Value No Existing Mortgage Age 62 $257,462* or $1,445 Monthly Age 62 $295,512* or $1,658 Monthly Age 82 $282,477* or $2,109 Monthly Age 82 $359,527* or $2,583 Monthly * *Above numbers are calculated from current interest rate at time of printing.. Consult your Reverse Mortgage Advisor for current market rates that may apply.. Source: Genworth Financial Home Equity Access, Quote Packages August 8and 30,

5 Home Equity for Retirement Needs 5

6 HECM Saver: Line of Credit - Age 62 - LOC Wait 10 or 20 Years to Use By using a HECM Saver at age 62 create a Line of Credit. Choose NOT to use it for the first 10 or 20 years, the LOC grows additional retirement funds. Example: Home Value: $500,000 Line of Credit Yr 1: $252,477 Line of Credit Yr 10: $395,511 Line of Credit Yr 20: $619,578 6 * *Above numbers are calculated from current interest rate at time of printing.. Consult your Reverse Mortgage Advisor for current market rates that may apply. Source: Genworth Financial Home Equity Access, Quote Packages August 8, 2012.

7 ASSETS Growing Line-of-Credit: HECM vs. HELOC AVAILABLE LINE OF CREDIT CLIENT AGES 7 * Above numbers are calculated from current interest rate at time of printing.. Consult your Reverse Mortgage Advisor for current market rates that may apply. Source: Genworth Financial Home Equity Access, Quote Packages August 8, 2012.

8 Common Misconceptions Does the lender take ownership of the home? Homeowner retains full ownership. A reverse mortgage is a loan. Can I be forced to leave my home? Homeowner can stay in home until loan maturity event occurs. (Paid taxes, reasonable upkeep, and keeping homeowners insurance current is required; Maturity events include death, move-out, sell.) Can I owe more than my home is worth? The non recourse feature means that homeowners, or their heirs, are not responsible for more than the value of home at the time it is being sold. Must a home must be free and clear to obtain a reverse mortgage? No; however, there must be enough equity to pay off any existing loans. 8

9 Summary It s Simple Transaction much like a home refinance Improvements such as lower up front MIP, lower origination fee It s Flexible Fixed or adjustable rate Proceeds may be taken as lump sum, L.O.C. monthly payment (Fixed rate- lump sum only) It s Safe FHA insured (HECM) Consumer counseling required It s Useful Use as a monthly cash flow tool Credit line Relieves existing debt and mortgage payments Purchase a home (downsize or upsize retirement friendly home) It s Proven 564,340 HECM loans currently active* 75,000+ written every year 728,905 HECM total HECM endorsements* * Source: H.U.D Fiscal year ending 11/31/2011 9

10 Thank you for your time. Questions? Call:

11 Appendix I The Slides that Follow Contain Additional Information on Reverse Mortgages. 11

12 Outliving Your Assets: A Case Study Client Facts: 62 year-old Clients with a $500,000 portfolio will be depleted in 18 years. This despite a plan with Social Security income and a $500,000 home. Solution: Use a HECM tenure payment in year 1 of the plan to provide tax-free cash so that the clients have sufficient assets and income through ages 90 and 93, respectively. + = 1 Source: MoneyGuide Pro Illustration July, 2012

13 Probability of Funding Retirement Goal 13 Source: MoneyGuide Pro Illustration July, 2012

14 ASSETS Two Strategies: One Acceptable Result RETIREMENT ASSETS CLIENT AGES 14 Source: MoneyGuide Pro Illustration July, 2012

15 Extending the Portfolio Value Using Tenure Payment By using a HECM Standard at age 62, tax-free cash in a monthly payment bridges financial gaps to reach goals. Example: Home Value: $ 500,000 Available Cash: $ 295,512 Monthly Payment: $ 1,658 * *Above numbers are calculated from current interest rate at time of printing.. Consult your Reverse Mortgage Advisor for current market rates that may apply. Source: Genworth Financial Home Equity Access, Quote Packages August 30,

16 Social Security Deferral: A Case Study Client Facts: A 62-year-old client with $500,000 in an investment portfolio, home worth $500,000+ (no mortgage) and no pension. Projected living expenses are $66,000/year. Plan is projected through age 90 and 93. Investment earnings and Social Security benefits at age 62 are not sufficient to finance the client s retirement through his life expectancy. Solution: Defer Social Security benefits to age 70 so that benefits are higher and use a reverse mortgage to supplement income during the eight-year deferral period. 16 Source: MoneyGuide Pro Illustration July, 2012

17 Social Security Deferral with Confidence SS Early SS Delayed SS Delayed RM Tenure 17 Source: MoneyGuide Pro Illustration July, 2012

18 ASSETS Ending Portfolio Balance: Ages PORTFOLIO ASSETS CLIENT AGES 18 Source: MoneyGuide Pro Illustration July, 2012

19 ASSETS Ending Portfolio Balance: Ages PORTFOLIO ASSETS CLIENT AGES 19 Source: MoneyGuide Pro Illustration July, 2012

20 POST RETIREMENT INCOME Post Retirement Income: Ages SOCIAL SECURITY WITH/WITHOUT HECM CLIENT AGES 20 Source: MoneyGuide Pro Illustration July, 2012

21 POST RETIREMENT INCOME Post Retirement Income: Ages SOCIAL SECURITY WITH/WITHOUT HECM CLIENT AGES 21 Source: MoneyGuide Pro Illustration July, 2012

22 Downsizing with Liquidity: A Case Study 22

23 Downsizing with Liquidity: A Case Study 23 * Above numbers are calculated from current interest rate at time of printing.. Consult your Reverse Mortgage Advisor for current market rates that may apply. Source: Genworth Financial Home Equity Access, Quote Packages August 8, 2012.

24 Upsizing with Liquidity: A Case Study 24

25 Upsizing with Liquidity: A Case Study * *Above numbers are calculated from current interest rate at time of printing.. Consult your Reverse Mortgage Advisor for current market rates that may apply. Source: Genworth Financial Home Equity Access, Quote Packages August 8,

26 A Day in Retirement Planning Most people consider just three components to their retirement planning. SOCIAL SECURITY PENSION SAVINGS & INVESTMENTS 26

27 A New Day in Retirement Planning A fourth component a HECM can help supplement retirement income and provide increased cash flow Provides tax-free cash Requires no monthly mortgage payments* Lets homeowners stay in their home *Homeowners continue to pay property taxes, homeowner s insurance, keep up home maintenance. Although there are no monthly mortgage payments, interest does accrue on the portion of the loan amount disbursed. HECM SOCIAL SECURITY PENSION SAVINGS & INVESTMENTS 27

28 Glossary of Terms Adjustable Rate HECM (ARM) A HECM which has an interest rate that is subject to adjustments. U.S. Department of Housing and Urban Development (HUD) Federal Housing Administration (FHA) Fixed Rate HECM A HECM that has an interest rate that does not change during the life of the loan. Home Equity Conversion Mortgage (HECM) A reverse mortgage insured by the Federal Housing Administration. Good Faith Estimate Lists the approximate closing costs of obtaining a loan. HECM for Purchase (H4P) A HECM that is used to help finance the purchase of the borrower s principle residence. Lender A bank or institution licensed to originate residential mortgage loans. London Interbank Offered Rate (LIBOR) The average interest rate that leading banks in London charge when lending to other banks. It is the index used as the basis for Adjustable Rate HECM's. 28

29 Glossary of Terms (continued) Servicing The maintenance of the loan after it is originated. It includes providing regular statements, updating information and providing funds to the borrower as requested. Tenure payments Monthly payments throughout the life of the loan. Term payments Monthly equal payments that are borrowed for a specified amount time. Total Annual Loan Cost (TALC) Rate The estimated cost of the loan expressed as an annual rate. Right of rescission A business three day time period after a loan closes in which a borrower may change their mind and revoke the loan. American Association of Retired Persons (AARP) A nonprofit, nonpartisan membership organization for people age 50 and older. National Reverse Mortgage Lenders Association (NRMLA) The national voice of the reverse mortgage industry. Serves as an educational resource, policy advocate and public affairs center Founded in