When envisioning a financially secure retirement, people typically don’t consider a reverse mortgage in their planning process. Even though a reverse mortgage can add options and flexibility to their retirement funding strategy, people are still skeptical about its real benefits. For this reason, FAR developed a robust reverse mortgage calculator called the Reverse Illustrator tool, which graphically displays the features of a reverse mortgage over a term of up to 30 years.
With the interactive features of the Illustrator, prospective borrowers have the opportunity to visualize several “what if” scenarios, such as; how would the line of credit grow if I were to make payments to reduce an existing reverse loan balance? Or what would happen if interest rates on an adjustable reverse were to hit their rate cap? How would systematic or occasional withdrawals impact the available balances, and what would a tenure payment be if I decided to take one in 20 years?
Figure 1. FAR Reverse Illustrator Scenario
Figure 1. This example shows a 62-year-old borrower, with a $400,000 home, who puts in place a Reverse Line of Credit, using an annual adjustable product with a 1.875 margin.
For illustration purposes, we have input $18,000 for closing costs. Prospects can point to any time on the graph to view the available line of credit, the accrued loan balance from financed closing costs, and the home value. This visual helps them to see not only the relationship of costs to benefits over time but also the value proposition of a growing line of credit.
Figure 2. FAR Reverse Illustrator Scenario
Figure 2. This Illustration shows the same scenario as Figure 1; however, it displays the impact of flat real estate value over the 30-year term. In this case, the borrower can see the safety and flexibility that the growing line of credit can have for their retirement income plans, regardless of what happens to the value of the collateral. They can still access funds from the line of credit, or convert any part of it to a tenure payment, regardless of the home value.
In addition to providing financial information for a traditional FHA reverse, the Illustrator also allows users to select from FAR’s diverse proprietary HomeSafe products, to see which might best suit their particular needs. The HomeSafe products include three cash-out, fixed-rate options, a flexible payout option, the industry’s only 2nd lien position product, and a Line of Credit product. All of these have maximum loan amounts of $4 million.
While some people may still think a reverse mortgage is a loan of last resort, the Reverse Illustrator from FAR goes a long way to help change those opinions. The simplicity of the Reverse Illustrator and the powerful graphic displays help to sell the concept that a reverse mortgage, when properly used, can have a powerful impact on a prospective borrower’s retirement plans.
Oregon Only:·When the loan is due and payable, some or all of the equity in the property that is the subject of the reverse mortgage no longer belongs to borrowers, who may need to sell the home or otherwise repay the loan with interest from other proceeds. FAR may charge an origination fee, mortgage insurance premium, closing costs and servicing fees (added to the balance of the loan).·The balance of the loan grows over time and FAR charges interest on the balance.· Borrowers are responsible for paying property taxes, homeowner’s insurance, maintenance, and related taxes (which may be substantial). We do not establish an escrow account for disbursements of these payments. A set-aside account can be set up to pay taxes and insurance and may be required in some cases. Borrowers must occupy home as their primary residence and pay for ongoing maintenance; otherwise the loan becomes due and payable. The loan also becomes due and payable (and the property may be subject to a tax lien, other encumbrance, or foreclosure) when the last borrower, or eligible non-borrowing surviving spouse, dies, sells the home, permanently moves out, defaults on taxes, insurance payments, or maintenance, or does not otherwise comply with the loan terms. Interest is not tax-deductible until the loan is partially or fully repaid.
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