Reverse Mortgage. by Jeffrey D. Smith

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Reverse Mortgage. by Jeffrey D. Smith"

Transcription

1 There are finance companies that are offering the "Reverse Mortgage" to seniors (at least age 62). Seniors with a substantial amount of equity in their residence are targets of this aggressive predatory loan. There are many "celebrities" who claim a reputation for financial literacy that are peddling this nonsense loan on television and the internet. I doubt they have done their "home work" on analyzing this stupid predatory loan. Yes, I said it. A "Reverse Mortgage" is a stupid predatory loan. It preys on the elderly, who are mostly financially illiterate. The borrowers are stupid and the lenders are predators. Here are my reasons: 1. It preys on the financially illiterate elderly. The minimum age qualification is 62. This is to increase the probability that the borrower dies within a few years to reduce the lender's risk. 2. The lender uses actuarial tables and inflation rates to calculate an estimate of the upper debt limit and the number of periodic payments. The lender wants to keep the total debt within an inflation adjusted Loan to Value (LTV) ratio (usually less than 70%), so that the property can be sold upon demise of the borrower to recover the principal and the compound interest. This conservative approach greatly reduces the "benefit" for the borrower compared to alternatives that I'll discuss later. 3. The "government insured" loans are backed by the FHA (the tax payers) to protect the lender, not the borrower. It is the "Home Equity Conversion Mortgage" (HECM) program. 4. If a Reverse Mortgage is such a good investment, then why must the lender seek protection from the tax payer? Why isn't there private insurance? Because it's too risky. 5. The Reverse Mortgage uses compound interest to extract most of the equity from the elderly in the form of deferred interest. For a 30-year payout, that could amount to as much as 70% of the equity lost to compound interest. The lender invests $1 to earn $2.50 interest, plus the $1 principal must be repaid. 6. If the borrower moves out (usually for health reasons), then the loan balance is due and payable within 6 months, and is subject to the usual rules for capital gains taxation on a primary residence (assuming that the property must be sold to pay the debt). 7. A sick elderly borrower probably cannot qualify for a refinance, and the property must be sold to repay the debt. The clock is ticking, which means it will be a distressed sale for less than fair market value; probably only for the amount owed, which means no equity and no cash flow for the owner. If the housing market is in a slump, then the FHA (tax payers) cover any deficiency. The heirs get nothing. 8. The tax payer is obligated to protect the lender in the event: 8.1. The lender must pay the periodic (monthly) payments for as long as the borrower lives in the residence, which could create a future debt balance that far exceeds the property value Upon demise or departure of the borrower, the property sells for an insufficient price to cover the principal and deferred (compound) interest. Page 1 of 6 Copyright 2012 Verity Investments LLC

2 9. The borrower is obligated to pay property taxes, property insurance, maintenance and repairs from the periodic payment. That leaves very little cash flow to cover basic necessities, like food, utilities, health care premiums, transportation, etc. 10. The origination costs of a Reverse Mortgage are much larger than a conventional refinance loan. Those costs are usually rolled into the initial loan amount and then charged compound interest for the life of the borrower. Many reverse mortgages that were originated by the "Big Banks" are now in default, because the seniors (borrowers) were spending the monthly payment and not paying their property taxes or insurance. That's not a surprise, because those borrowers are financially illiterate. If they understood the Time Value of Money (TVM), then they would never consider a Reverse Mortgage. Those banks are now exiting this niche business, because of these big problems. Smaller finance companies are more aggressive about pursuing foreclosures. They are obligated to pay a minimum principal amount upon selling the property through foreclosure. That amount is rarely more than 70% of the current market value, and the disbursed loan amount plus compound interest, fees and penalties are subtracted from the net sale proceeds. This leaves the seniors with very little of their "nest egg" equity, and when combined with their financial illiteracy, that money will be spent soon, leaving the destitute seniors on public assistance. Sensible Investment Alternatives Rather than paying heavily for the privilege of eating their own equity, folks with substantial equity should consider leveraging their equity in a high yield investment: 1. Refinance their equity for investing in professionally managed income property. 2. Sale & lease-back their property to a professional syndicator. A structured seller financing arrangement can provide cash for a leveraged equity investment. Option 1 requires that they can qualify as borrowers for a refinance, and they can find a good income property portfolio (or a professional syndicator) for their leveraged investment. Option 2 requires the professional syndicator to qualify for the seller finance note that will be sold to a note buyer or refinanced with cash out to the seller. The cash out is then escrowed for investing in a syndicated acquisition of an income property for the benefit of the seller. The price paid by the syndicator is calculated according to the income valuation of the property at current market rents for comparable houses. In the event that the former owner wants to move out, the property can carry its seller financed notes with market rents. The syndicator charges "rent" to the seller to cover the cost of the seller financing. The rent, debt service, and net cash flow (after property taxes, property insurance, maintenance and repairs, etc.) are covered from the cash flow of the syndicated income property acquisition. The syndicator (landlord) manages escrowing for property taxes, property insurance, maintenance and repairs. Page 2 of 6 Copyright 2012 Verity Investments LLC

3 The former owner (tenant) is now a renter and receives a net cash flow check each month after all expenses and debt service is paid. The "rent" is not a tax deductible expense, but most of the cash flow from the income property is tax sheltered through the depreciation allowance. The benefits of leveraging the equity through a syndicated investment in income property: 1. The minimum age requirement is the legal age of assent for entering into a contract, usually about 18 years old. Anyone who can legally enter a contract and with substantial equity and sufficient financial sophistication (or advice from a qualified professional) can participate. 2. If the home owner can qualify for the cash out refinance, then after the debt is repaid from the net cash flow from the income property, the house can be refinanced again for another investment in another income property. 3. If the home owner cannot qualify for the cash out refinance, then a syndicator can buy the property with a sale & lease-back arrangement and structured seller financing. The syndicator sells the seller financing note and leverages that cash out into a syndicated income property. Alternatively, the seller financing note can be refinanced for the cash out. Either way, the syndicator is the Payor on the note, and qualifies for the note sale or the refinance. Qualifying includes the contemplated acquisition of the income property. Thus, the potential net cash flow from the income property will qualify the syndicator for the note sale or the refinance. 4. The "principal" portion of the seller finance sale is sheltered by the usual capital gains tax rules for an installment sale of the primary residence. Immediately selling or refinancing the note is also covered by the capital gains tax rules. 5. For a sale & lease-back, the net cash flow from the income property covers all of the costs of debt service, taxes, insurance, maintenance and repairs, plus spendable monthly income. Most of that income is tax sheltered due to the depreciation allowance that is provided to the equity investors on the income property. 6. After the seller financing note is paid off, the "rent" can still be serviced from the net cash flow of the income property (that's what was paying the seller financing). The former owner can live there for as long as they comply with the lease agreement. 7. The syndicator can include a "sublet" clause, to allow the tenant to move out and sublet the property for additional cash flow. Subletting to a subtenant is subject to the syndicator approving the subtenant, and will not relieve the senior tenant from the lease obligation. If the former owner moves out for health reasons or just to move to a better location, then the net cash flow continues from the income property. 8. Upon demise of the senior tenant, the lease terminates. The syndicator can rent the house to someone else to cover the seller financing note, or just sell the house. If the house was sublet, then the sub-lease can automatically "ripen" into an ordinary lease. 9. The "benefit" of the net cash flow from the income property passes to the heirs on a steppedup tax basis, without an obligation to service the lease agreement (the lease terminates upon demise) and without capital gains tax (within the "then current" limits of tax law). Page 3 of 6 Copyright 2012 Verity Investments LLC

4 Example: Reverse Mortgage For a property value of $200,000, the Reverse Mortgage generates a monthly payment of $256.50, from which is paid property taxes, property insurance, maintenance and repairs, utilities, food and transportation. If we assume these minimum parameters: Carrying Costs Requirement Annual Property Tax... $1,200 Annual Property Insurance... $600 Annual Maintenance and Repairs... $600 Annual Utilities... $1,200 Annual Food... $3,600 Annual Transportation... $600 Annual Cash Flow Requirement... $7,800 Monthly Total... $650 The total monthly cash flow of $256 is insufficient to cover the $650 monthly carrying costs requirement. This is the main reason that borrowers default on their Reverse Mortgage. They haven't calculated their total income and expense requirements, plus net spendable cash flow. Reverse Mortgage Debt Parameters Property Value... $200,000 Fair Market Value (FMV) Starting Balance... $8,000 Loan origination fees Annual Inflation Rate % Annual Interest Rate % Compound interest Compounding Term years Inflation Adjusted Final Value... $491,400 (really?) Maximum Future Debt Value... $307,125 [62.50% LTV] Total Principal Paid... $92,340 [360 $256.50] Total Interest Owed... $214,785 Periodic (Monthly) Payment... $ (gross) Annual Payment... $3, Look at a syndication scenario that leverages the equity from the cash out refinance of the house. Start with the refinance cash out parameters: Amortization Debt Parameters Property Value... $200,000 Fair Market Value (FMV) Annual Interest Rate % Compound interest Amortization Term years Annual Debt Constant (ADC) % Refinance Closing Cost... $4, % Annual Percentage Rate (APR) % on net loan proceeds Maximum Debt Present Value... $140,000 [70.00% LTV] Total Interest Paid... +$162,174 Total Payments... $302,174 [360 $839.37] Periodic (Monthly) Payment... $ Annual Payment... $10, Page 4 of 6 Copyright 2012 Verity Investments LLC

5 Then calculate the syndication parameters for the investment tranches: Syndicated Investment Parameters 1 st Loan to Value Rate % 1 st Loan Annual Interest Rate % 1 st Loan Amortization Term years 1 st Loan Incentive Fee Rate % rolled in 1 st Loan Net Proceeds... $528,111 1 st Loan Annual Debt Service... $39,171 2 nd Preferred Equity to Value Rate % 2 nd Preferred Equity Interest Rate % 2 nd Preferred Equity Amortization Term years 2 nd Preferred Equity Incentive Fee Rate % rolled in 2 nd Preferred Equity Net Proceeds... $150,889 2 nd Preferred Equity Cash Flow... $14,503 3 rd Common Equity to Value Rate (ETV) % 3 rd Common Equity Net Investment... $75,444 3 rd Common Equity Total Investment... $135,800 3 rd Common Equity Return on Equity Rate % (net yield) 3 rd Common Equity Return on Equity... $18,107 [60.00% ownership] 4 th Syndicator Premium Fee... $30,178 [4.00% MAO] 4 th Syndicator Operating Reserves... $15,089 [2.00% MAO] 4 th Syndicator Escrow Closing Cost... $15,089 [2.00% MAO] 4 th Syndicator Annual Cash Flow... $12,071 [40.00% ownership] Investment Property Operating Data Gross Scheduled Income (GSI)... $163,932 Vacancy and Credit Loss... $19,672 [12.00% GSI] Actual Rental Income... $144,260 Other Income... +$8,197 [5.00%] Effective Gross Income (EGI)... $152,456 Gross Operating Expense (GOE)... $68,605 [45.00% EGI] Net Operating Income (NOI)... $83,851 [55.00% EGI] Capitalization Rate (CAP) % [DCR ADC LTV] Maximum Allowable Offer (MAO)... $754,444 [NOI CAP] Debt Coverage Ratio (DCR) Debt Coverage Margin (DCM) % Cash Flow Margin (CFM) % Leverage to Yield Senior Tranche Loan to Value (LTV)... $679,000 Senior Tranche Annual Debt Constant % Senior Tranche Annual Debt Service... $53,673 [90.00% LTV] ADC ADS Common Equity Cash Flow Before Tax... $18,107 CFBT Common Equity House Debt Service... $10,072 Common Equity Net Cash Flow Annual... $8,035 [house DCR ] Common Equity Net Cash Flow Monthly... $669 Page 5 of 6 Copyright 2012 Verity Investments LLC

6 The gross Return on Equity (ROE) is 40%, which is split between the syndicator and the common equity investor. The common equity investor realizes 13.33% net effective yield. We have covered the monthly net cash flow requirement of $650. However, by tweaking one parameter, the gross Return on Equity (ROE), we can also provide for some net spendable cash flow. Changing the ROE from 40% to 50% changes the DCR from to This one change increases the 3 rd common equity net yield from 13.33% to 16.67%. The Capitalization Rate (CAP) is now %. Adjusted Investment Property Operating Data Gross Scheduled Income (GSI)... $178,681 Vacancy and Credit Loss... $21,442 [12.00% GSI] Actual Rental Income... $157,239 Other Income... +$8,934 [5.00%] Effective Gross Income (EGI)... $166,173 Gross Operating Expense (GOE)... $74,778 [45.00% EGI] Net Operating Income (NOI)... $91,395 [55.00% EGI] Capitalization Rate (CAP) % [DCR ADC LTV] Maximum Allowable Offer (MAO)... $754,444 [NOI CAP] Debt Coverage Ratio (DCR) Debt Coverage Margin (DCM) % Cash Flow Margin (CFM) % Leverage to Yield Common Equity Cash Flow Before Tax... $22,633 CFBT Common Equity House Debt Service... $10,072 Common Equity Net Cash Flow Annual... $12,561 [house DCR ] Common Equity Net Cash Flow Monthly... $1,047 The common equity Cash Flow Before Tax (CFBT) increases to $22,633. Subtracting the House Debt Service $10,072 leaves $12,561 Net Cash Flow Annual. The monthly net cash flow is $1,047 from the income property. Subtracting the monthly carrying costs of $650 leaves $397 positive cash in pocket after paying all expenses and debt service. Take note that these cash flow calculations are after the syndicator receives his split of the net cash flow before tax. Also, the syndicator's split is subordinated to the common equity investor. If the cash flow decreases, then syndicator's portion is reduced to zero before the common equity investor suffers any loss of income. The professional syndicator can deliver a far better benefit to the home owner compared to a Reverse Mortgage. The professional syndicator provides a valuable service by finding and managing the investment income property, and managing the escrow of the taxes, insurance, maintenance and repairs. The syndicator can also offer bookkeeping services (through a licensed CPA office) to monitor the budget for food, transportation, etc. You can review my affordable course "Introduction to Income Valuation and Syndication" at for more information on becoming a professional syndicator. Page 6 of 6 Copyright 2012 Verity Investments LLC

White Paper. LIHTC Apartments Mortgage Risk Why They Do Not Default. By George Vine, CFA

White Paper. LIHTC Apartments Mortgage Risk Why They Do Not Default. By George Vine, CFA White Paper LIHTC Apartments Mortgage Risk Why They Do Not Default By George Vine, CFA Introduction People generally know that LIHTC mortgages (first mortgages on low income housing tax creditfinanced

More information

Managing Home Equity to Build Wealth By Ray Meadows CPA, CFA, MBA

Managing Home Equity to Build Wealth By Ray Meadows CPA, CFA, MBA Managing Home Equity to Build Wealth By Ray Meadows CPA, CFA, MBA About the Author Ray Meadows is the president of Berkeley Investment Advisors, a real estate brokerage and investment advisory firm. He

More information

Guide to Reverse Mortgages

Guide to Reverse Mortgages Guide to Reverse Mortgages Prepared by Steve Juetten, CFP Juetten Personal Financial Planning, LLC. www.finpath.com 425-373-9393 Disclaimer: the information in this report was prepared from reliable sources;

More information

USA Reverse. Learn the Facts about Reverse Mortgages. Danny Glover - Human Rights Activist

USA Reverse. Learn the Facts about Reverse Mortgages. Danny Glover - Human Rights Activist Learn the Facts about Reverse Mortgages Danny Glover - Human Rights Activist Single-purpose Reverse Mortgages Single-purpose reverse mortgages are the least expensive option. They re offered by some state

More information

Accounts payable Money which you owe to an individual or business for goods or services that have been received but not yet paid for.

Accounts payable Money which you owe to an individual or business for goods or services that have been received but not yet paid for. A Account A record of a business transaction. A contract arrangement, written or unwritten, to purchase and take delivery with payment to be made later as arranged. Accounts payable Money which you owe

More information

Reverse Mortgage Information Guide

Reverse Mortgage Information Guide Reverse Mortgage Information Guide Table of Contents FHA Reverse Mortgages 3 Common Misconceptions about Reverse Mortgages 4 How the Program Works 4 Benefits of a HECM loan 4 HECM vs. Traditional Mortgage

More information

Home Mortgage Interest Deduction

Home Mortgage Interest Deduction Department of the Treasury Internal Revenue Service Publication 936 Cat.. 10426G Home Mortgage Interest Deduction For use in preparing 1998 Returns Contents Introduction... 1 Part I: Home Mortgage Interest...

More information

AN INTRODUCTION TO REAL ESTATE INVESTMENT ANALYSIS: A TOOL KIT REFERENCE FOR PRIVATE INVESTORS

AN INTRODUCTION TO REAL ESTATE INVESTMENT ANALYSIS: A TOOL KIT REFERENCE FOR PRIVATE INVESTORS AN INTRODUCTION TO REAL ESTATE INVESTMENT ANALYSIS: A TOOL KIT REFERENCE FOR PRIVATE INVESTORS Phil Thompson Business Lawyer, Corporate Counsel www.thompsonlaw.ca Rules of thumb and financial analysis

More information

Year 15: Transition Strategies for Expiring LIHTC Properties

Year 15: Transition Strategies for Expiring LIHTC Properties Year 15: Transition Strategies for Expiring LIHTC Properties April 25, 2013 Enterprise Live Online Event Presenters: Laura Turner, Sr. Disposition Manager, Asset Management Sean Barnes, Sr. Disposition

More information

Paragon 5. Financial Calculators User Guide

Paragon 5. Financial Calculators User Guide Paragon 5 Financial Calculators User Guide Table of Contents Financial Calculators... 3 Use of Calculators... 3 Mortgage Calculators... 4 15 Yr vs. 30 Year... 4 Adjustable Rate Amortizer... 4 Affordability...

More information

Mortgage Terms Glossary

Mortgage Terms Glossary Mortgage Terms Glossary Adjustable-Rate Mortgage (ARM) A mortgage where the interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate. You may also see

More information

Accounts Payable Accounts Receivable Amortization Annual Interest Rate Annual Percentage Rate Attorney Fees Bridge Financing

Accounts Payable Accounts Receivable Amortization Annual Interest Rate Annual Percentage Rate Attorney Fees Bridge Financing Accounts Payable Accounts payable are business debts that must be paid off within a relatively short period of time, as opposed to long term debt such as mortgage loans and equipment loans. Accounts payable

More information

Lecture Notes. Dollars and Sense of Building Rehabilitation. Attracting Equity and Debt. National Development Council

Lecture Notes. Dollars and Sense of Building Rehabilitation. Attracting Equity and Debt. National Development Council 1 Dollars and Sense of Building Rehabilitation Attracting Equity and Debt 2 Lecture Notes 927 Dudley Road Edgewood, KY 41017 ph: 859-578-4850 fax: 859-578-4860 2006 All rights reserved. Version: August

More information

Commercial Lending Glossary

Commercial Lending Glossary Commercial Lending Glossary Acre: Unit of land measure equal to 43,560 square feet. Amortization (To Amortize): The act of paying off a debt through scheduled periodic payments. Example: A 20 year amortization

More information

How should banks account for their investment in other real estate owned (OREO) property?

How should banks account for their investment in other real estate owned (OREO) property? TOPIC 5: OTHER ASSETS 5A. REAL ESTATE Question 1: (December 2008) How should banks account for their investment in other real estate owned (OREO) property? Detailed accounting guidance for OREO is provided

More information

MORTGAGE TERMS. Assignment of Mortgage A document used to transfer ownership of a mortgage from one party to another.

MORTGAGE TERMS. Assignment of Mortgage A document used to transfer ownership of a mortgage from one party to another. MORTGAGE TERMS Acceleration Clause This is a clause used in a mortgage that can be enforced to make the entire amount of the loan and any interest due immediately. This is usually stipulated if you default

More information

Chapter 19. Residential Real Estate Finance: Mortgage Choices, Pricing and Risks. Residential Financing: Loans

Chapter 19. Residential Real Estate Finance: Mortgage Choices, Pricing and Risks. Residential Financing: Loans Chapter 19 Residential Real Estate Finance: Mortgage Choices, Pricing and Risks 10/25/2005 FIN4777 - Special Topics in Real Estate - Professor Rui Yao 1 Residential Financing: Loans Loans are classified

More information

Property Report : House in Dallas

Property Report : House in Dallas Property Report : House in Dallas Generated on: Jul 6, 2016 Author: Guest Page 1 of 11 Table of Contents Executive Summary 3 Property Description 4 Operational Effectivness 5 Financial Effectivness 6 Financing

More information

INCOME APPROACH Gross Income Estimate - $198,000 Vacancy and Rent Loss - $9,900

INCOME APPROACH Gross Income Estimate - $198,000 Vacancy and Rent Loss - $9,900 INCOME APPROACH The Income Approach considers the return on Investment and is similar to the method that investors typically use to make their investment decisions. It is most directly applicable to income

More information

Reverse Mortgage Presented by Ian MacGillivray, NMLS #638502 American Capital Corporation, NMLS #264422 Phone: 505-690-1089 Website:

Reverse Mortgage Presented by Ian MacGillivray, NMLS #638502 American Capital Corporation, NMLS #264422 Phone: 505-690-1089 Website: Reverse Mortgage American Capital Corporation, Phone: 505-690-1089 Website: http://mortgagepartners-santafe.com Contents I. What Is a Reverse Mortgage? II. Benefits and Typical Uses III. Is the Home at

More information

Reverse Mortgage Guide

Reverse Mortgage Guide Reverse Mortgage Guide Reverse Mortgage Answers, LLC Find out why 25 years of experience makes a difference (800) 420-5515 www.rmanswers.com What is a Reverse Mortgage and How does it Work? A Reverse Mortgage

More information

Appraisal A written analysis prepared by a qualified appraiser and estimating the value of a property

Appraisal A written analysis prepared by a qualified appraiser and estimating the value of a property REAL ESTATE BASICS Affordability Analysis An analysis of a buyer s ability to afford the purchase of a home, reviews income, liabilities, and available funds, and considers the type of mortgage a buyer

More information

Key Points: Conventional Loans:

Key Points: Conventional Loans: Key Points: Conventional Loans: Less regulation and more discretion than government loans. Can be cheaper than FHA and VA because FHA requires 2 mortgage insurances and VA requires VA funding fee. Sometimes

More information

Module 8: Reverse Mortgages and Other Private Financing Options for Long-Term Care. Posted 5/31/05

Module 8: Reverse Mortgages and Other Private Financing Options for Long-Term Care. Posted 5/31/05 Module 8: Reverse Mortgages and Other Private Financing Options for Long-Term Care Posted 5/31/05 Answers to Key Questions What LTC financing options are available other than insurance? What are the differences

More information

Reverse Mortgage Is it right for you?

Reverse Mortgage Is it right for you? Reverse Mortgage Is it right for you? Reverse Mortgages are being hyped as a tremendous tool for retirement income. This type of mortgage uses part of the equity in a home as collateral. A Reverse Mortgage,

More information

Achieving your goals through Financing. Cooperative Financing Models that may work for you

Achieving your goals through Financing. Cooperative Financing Models that may work for you Achieving your goals through Financing Cooperative Financing Models that may work for you Overview Cooperative Financing Overview of the environment Interest Rates Why now is the best time to borrow Reasons

More information

First Time Home Buyer Glossary

First Time Home Buyer Glossary First Time Home Buyer Glossary For first time home buyers, knowing and understanding the following terms are very important when purchasing your first home. By understanding these terms, you will make

More information

Conventional Financing

Conventional Financing Chapter 6 Conventional Financing 1 Chapter Objectives Identify the characteristics of a conventional loan. Define amortization. Identify different types of conventional loans. Discuss the use of private

More information

MORTGAGE DICTIONARY. Amortization - Amortization is a decrease in the value of assets with time, which is normally the useful life of tangible assets.

MORTGAGE DICTIONARY. Amortization - Amortization is a decrease in the value of assets with time, which is normally the useful life of tangible assets. MORTGAGE DICTIONARY Adjustable-Rate Mortgage An adjustable-rate mortgage (ARM) is a product with a floating or variable rate that adjusts based on some index. Amortization - Amortization is a decrease

More information

HOME BUYING101. 701.255.0042 www.capcu.org i

HOME BUYING101. 701.255.0042 www.capcu.org i HOME BUYING101 701.255.0042 www.capcu.org i This book is intended as a general guide to the topics discussed, and it does not deliver accounting, personal finance, or legal advice. It is not intended,

More information

I Want To Sell My Home! What Are My Options?

I Want To Sell My Home! What Are My Options? I Want To Sell My Home! What Are My Options? Today over 25% of the homes in America have loan balances that exceed the home value. If you re one of them it s not your fault and you do have choices which

More information

Understanding the APOD How to Crunch the Numbers on Your Investment Transaction

Understanding the APOD How to Crunch the Numbers on Your Investment Transaction Understanding the APOD How to Crunch the Numbers on Your Investment Transaction Commercial Investment Education Alliance Commercial Success Series 105 1 Commercial Investment Education Alliance Please

More information

Commercial Mortgage Types and Decisions

Commercial Mortgage Types and Decisions Commercial Mortgage Types and Decisions Commercial mortgages & notes for existing properties not as standardized as home loans Documents are longer & more complex Often no personal liability: Legal borrower

More information

Before you develop or acquire a property, you must know how big it is size is the key metric for real estate.

Before you develop or acquire a property, you must know how big it is size is the key metric for real estate. Real Estate Development Key Terms If you want to understand real estate development, you need to know the key terms used to describe properties whether you re developing the properties from the ground

More information

Commercial Mortgage Types and Decisions

Commercial Mortgage Types and Decisions Commercial Loans vs Home Loans Fin 5413 Commercial Mortgage Types and Decisions Commercial mortgages and notes are not as standardized as home loans Although this is changing with growth in commercial

More information

INCOME APPROACH. Leased Fee Income Approach Example

INCOME APPROACH. Leased Fee Income Approach Example INCOME APPROACH The Income Approach considers the return on Investment and is similar to the method that investors typically use to make their investment decisions. It is most directly applicable to income

More information

Appraiser: a qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

Appraiser: a qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate. Mortgage Glossary 203(b): FHA program which provides mortgage insurance to protect lenders from default; used to finance the purchase of new or existing one- to four family housing; characterized by low

More information

Mortgage Terms. Accrued interest Interest that is earned but not paid, adding to the amount owed.

Mortgage Terms. Accrued interest Interest that is earned but not paid, adding to the amount owed. Mortgage Terms Accrued interest Interest that is earned but not paid, adding to the amount owed. Negative amortization A rise in the loan balance when the mortgage payment is less than the interest due.

More information

1. What is the difference between nominal returns and real returns?

1. What is the difference between nominal returns and real returns? End of Chapter 11 Questions and Answers 1. What is the difference between nominal returns and real returns? Answer: Nominal returns include inflation while real returns have inflation netted out. For example,

More information

The Adam Lee Team 480-331-3501 Info@theadamleeteam.com. Alternatives to Foreclosure & REASONS WHY SHORT SALES ARE THE BETTER SOLUTION!

The Adam Lee Team 480-331-3501 Info@theadamleeteam.com. Alternatives to Foreclosure & REASONS WHY SHORT SALES ARE THE BETTER SOLUTION! The Adam Lee Team 480-331-3501 Info@ Alternatives to Foreclosure & REASONS WHY SHORT SALES ARE THE BETTER SOLUTION! Options When Facing Foreclosure 1. Do Nothing: If you choose to do nothing, you will

More information

Home Equity Conversion Mortgage Basics

Home Equity Conversion Mortgage Basics Home Equity Conversion Mortgage Basics Kelly Zitlow NMLS#164330 Vice President, CMPS 480.398.4908 kzitlow@ccmclending.com www.kellyzitlow.com Cherry Creek Mortgage Co., Inc. NMLS#3001 AZ BK#0904024 17015

More information

Income Capitalization Analysis Re: Example Property By: Your Name of Your Company Name

Income Capitalization Analysis Re: Example Property By: Your Name of Your Company Name Income Capitalization Analysis Re: Example Property By: Your Name of Your Company Name To obtain a reliable indication of a property's Market Value from the Income Capitalization Approach, it is necessary

More information

Background On Reverse Mortgages

Background On Reverse Mortgages Taking A Fresh Look At Reverse Mortgages Webinar Kitces.com Michael E. Kitces MSFS, MTAX, CFP, CLU, ChFC, RHU, REBC, CASL Partner. Director of Research, Pinnacle Advisory Group Publisher. The Kitces Report,

More information

Commercial Real Estate Investment: Opportunities for Income Generation in Today s Environment

Commercial Real Estate Investment: Opportunities for Income Generation in Today s Environment Commercial Real Estate Investment: Opportunities for Income Generation in Today s Environment Prepared by Keith H. Reep, CCIM Real Estate Investment Consultant In this white paper 1 Advantages of investing

More information

There are no asset or income limitations on borrowers receiving HUD's reverse mortgages.

There are no asset or income limitations on borrowers receiving HUD's reverse mortgages. DEPARTMENT OF HUD REVERSE MORTGAGE INFORMATION Homeowners 62 and older who have paid off their mortgages or have only small mortgage balances remaining are eligible to participate in HUD's reverse mortgage

More information

Replacing the current mortgage with some other kind of financing thus securing the same asset.

Replacing the current mortgage with some other kind of financing thus securing the same asset. MORTGAGE REFINACING Replacing the current mortgage with some other kind of financing thus securing the same asset. TYPES SOF REFINANCING 1. Standard fixed mortgage g with better terms. a. Lower rate is

More information

<Servicer Logo> Questions and Answers About Reverse Mortgages. If you have questions or need our help, call <8XX-XXX-XXXX>.

<Servicer Logo> Questions and Answers About Reverse Mortgages. If you have questions or need our help, call <8XX-XXX-XXXX>. Questions and Answers , If you have questions or need our help, call . What is a reverse mortgage? A reverse mortgage is a loan

More information

GLOSSARY COMMONLY USED REAL ESTATE TERMS

GLOSSARY COMMONLY USED REAL ESTATE TERMS GLOSSARY COMMONLY USED REAL ESTATE TERMS Adjustable-Rate Mortgage (ARM): a mortgage loan with an interest rate that is subject to change and is not fixed at the same level for the life of the loan. These

More information

A Guide to Reverse Mortgages

A Guide to Reverse Mortgages A Guide to Reverse Mortgages You may have heard about reverse mortgages on television or from a friend and are not quite sure what they are, or you may already know what a reverse mortgage is and are not

More information

LHFS Wholesale. HECM for Purchase Training Home Equity Conversion Mortgage. Great Rates. Great Programs. Great Service.

LHFS Wholesale. HECM for Purchase Training Home Equity Conversion Mortgage. Great Rates. Great Programs. Great Service. LHFS Wholesale HECM for Purchase Training Home Equity Conversion Mortgage Great Rates. Great Programs. Great Service. Discover the HECM for Purchase Loan The HECM for Purchase Program is a Federal Housing

More information

What s s New With FHA?

What s s New With FHA? What s s New With FHA? Presented By: Bill Ladewig 866.204.9733 http://www.mortgage- FHA Calculator Calculates everything needed to quote or qualify FHA loans Click to Open: http://www.themtgmentor.com/fha_mortgage_calculator.html

More information

Arkansas Development Finance Authority, a Component Unit of the State of Arkansas

Arkansas Development Finance Authority, a Component Unit of the State of Arkansas Arkansas Development Finance Authority, a Component Unit of the State of Arkansas Combined Financial Statements and Additional Information for the Year Ended June 30, 2000, and Independent Auditors Report

More information

CREATIVE FINANCING. Why Creative Financing? Why Creative Financing? Why Creative Financing? 9/2/2011

CREATIVE FINANCING. Why Creative Financing? Why Creative Financing? Why Creative Financing? 9/2/2011 HOW TO USE CREATIVE FINANCING TECHNIQUES TO YOUR ADVANTAGE Why Creative Financing? Beginning & unsophisticated Real Estate Investors let the bank tell them what they can buy. This doesn t work anymore.

More information

Reverse Mortgage Counseling Checklist

Reverse Mortgage Counseling Checklist Reverse Mortgage Counseling Checklist Have these items available for your counseling session... - Loan Comparison Page The calculator loan results is an estimate of available reverse mortgage programs

More information

No Money Down Investing R E I E T U T O R

No Money Down Investing R E I E T U T O R No Money Down Investing R E I E T U T O R What is No Money Down Investing? Different Investors Have Different Meanings Meaning # 1 No cash out of your pocket Meaning # 2 No cash or financing out of your

More information

HOME BUYING101 TM %*'9 [[[ EPXEREJGY SVK i

HOME BUYING101 TM %*'9 [[[ EPXEREJGY SVK i HOME BUYING101 TM i This book is intended as a general guide to the topics discussed, and it does not deliver accounting, personal finance, or legal advice. It is not intended, and should not be used,

More information

SHOPPING FOR A MORTGAGE

SHOPPING FOR A MORTGAGE SHOPPING FOR A MORTGAGE The Traditional Fixed-Rate Mortgage Key characteristics: Level payments, fixed interest rate, fixed term. This mortgage is the one which most of us know, and it is still the loan

More information

Broker. Federal Income Tax Laws Affecting Real Estate. Chapter 14. Copyright Gold Coast Schools 1

Broker. Federal Income Tax Laws Affecting Real Estate. Chapter 14. Copyright Gold Coast Schools 1 Broker Chapter 14 Federal Income Tax Laws Affecting Real Estate Copyright Gold Coast Schools 1 Learning Objectives List the 2 principal tax deductions available to homeowners List the 2 types of home loans

More information

Mortgage Term Glossary

Mortgage Term Glossary Mortgage Term Glossary Advance - The mortgage Loan. Adverse Credit - This is the term used if the borrower has suffered a poor credit history. This could include previous mortgage or loan arrears, CCJ's

More information

Assumable mortgage: A mortgage that can be transferred from a seller to a buyer. The buyer then takes over payment of an existing loan.

Assumable mortgage: A mortgage that can be transferred from a seller to a buyer. The buyer then takes over payment of an existing loan. MORTGAGE GLOSSARY Adjustable Rate Mortgage (ARM): A mortgage loan with payments usually lower than a fixed rate initially, but is subject to changes in interest rates. There are a variety of ARMs that

More information

Lease-Versus-Buy. By Steven R. Price, CCIM

Lease-Versus-Buy. By Steven R. Price, CCIM Lease-Versus-Buy Cost Analysis By Steven R. Price, CCIM Steven R. Price, CCIM, Benson Price Commercial, Colorado Springs, Colorado, has a national tenant representation and consulting practice. He was

More information

Peer-to-Peer Commercial Property Lending

Peer-to-Peer Commercial Property Lending Peer-to-Peer Commercial Property Lending Why Commercial Real Estate Debt is the Perfect Partner for P2P Lending Retail Industrial Office INTRODUCTION Peer-to-Peer Lending, also known as Loan Based Crowdfunding,

More information

HOUSING LOAN SUBORDINATION POLICY

HOUSING LOAN SUBORDINATION POLICY HOUSING LOAN SUBORDINATION POLICY Housing Loan Subordination Policy OBJECTIVE: To provide administrative guidance on processing requests for subordination of City/Agency loans PURPOSE: In consideration

More information

PURCHASE MORTGAGE. Mortgage loan types

PURCHASE MORTGAGE. Mortgage loan types PURCHASE MORTGAGE Mortgage loan types There are many types of mortgages used worldwide, but several factors broadly define the characteristics of the mortgage. All of these may be subject to local regulation

More information

The goal today is to accomplish three things:

The goal today is to accomplish three things: MARK SHERMAN, CPA The goal today is to accomplish three things: 1. Educate you on The Mortgage Forgiveness Debt Relief Act of 2007. 2. Show you how to save taxes on your real estate business. 3. Help you

More information

Real Estate Investment Newsletter July 2004

Real Estate Investment Newsletter July 2004 The Case for Selling Real Estate in California This month I am writing the newsletter for those investors who currently own rental properties 1 in California. In any type of investing, be it real estate,

More information

11.437 Financing Community Economic Development Class 6: Fixed Asset Financing

11.437 Financing Community Economic Development Class 6: Fixed Asset Financing 11.437 Financing Community Economic Development Class 6: Fixed Asset Financing I. Purpose of asset financing Fixed asset financing refers to the financing for real estate and equipment needs of a business.

More information

Reverse Mortgages Dangerous to Your Health? (Another Free InvestEd Webinar)

Reverse Mortgages Dangerous to Your Health? (Another Free InvestEd Webinar) Reverse Mortgages Dangerous to Your Health? (Another Free InvestEd Webinar) Bob Adams InvestEd Instructor 2011-2012 Bob Adams 2 Every Mortgage Payment Added to Your Equity YOUR HOME IS A GIANT PIGGY BANK

More information

How to Avoid Foreclosure

How to Avoid Foreclosure How to Avoid Foreclosure M ost lenders do not want to foreclose. The process costs them money and they often sell the properties at less than the amount of the mortgage. Plus, lenders have some legal requirements

More information

Assist. Financial Calculators. Technology Solutions. About Our Financial Calculators. Benefits of Financial Calculators. Getting Answers.

Assist. Financial Calculators. Technology Solutions. About Our Financial Calculators. Benefits of Financial Calculators. Getting Answers. Assist. Financial s Technology Solutions. About Our Financial s. Helping members with their financial planning should be a key function of every credit union s website. At Technology Solutions, we provide

More information

Real Estate Principles Chapter 12 Quiz

Real Estate Principles Chapter 12 Quiz Real Estate Principles Chapter 12 Quiz 1. A prudent lender who is deciding whether or not to make a real estate loan to a prospective borrower will ensure that: A. the market value of the property is greater

More information

Enhance Your Financial Security

Enhance Your Financial Security Enhance Your Financial Security With a Home Equity Conversion Mortgage Many homeowners across the nation have chosen a Home Equity Conversion Mortgage (HECM) to help them meet financial and personal goals.

More information

Equity release using your home to get a cash sum

Equity release using your home to get a cash sum Equity release using your home to get a cash sum for independent information About us We are an independent watchdog set up by the Government to: regulate firms that provide financial services; and help

More information

Reverse Mortgages: A Guide for Consumers. A New Report from THE AMERICAN ADVISORY COUNCIL

Reverse Mortgages: A Guide for Consumers. A New Report from THE AMERICAN ADVISORY COUNCIL Reverse Mortgages: A Guide for Consumers A New Report from THE AMERICAN ADVISORY COUNCIL This publication is designed to provide accurate and authoritative information regarding the subject matter covered.

More information

Borrowing at negative interest rates and investing at imaginary returns

Borrowing at negative interest rates and investing at imaginary returns Borrowing at negative interest rates and investing at imaginary returns Prepared by Eric Ranson Presented to the Actuaries Institute Financial Services Forum 5 6 May 2014 Sydney This paper has been prepared

More information

Mortgage Alternatives: The Risks and Opportunities 1

Mortgage Alternatives: The Risks and Opportunities 1 Fact Sheet HE 3226 Mortgage Alternatives: The Risks and Opportunities 1 Virginia Peart, Ph.D. 2 Buying a home involves a difficult decision process. Today s mortgages are complex, and homeownership is

More information

The Adjustable Rate Loan, the Graduated Payment Loan, and Other Loan Arrangements

The Adjustable Rate Loan, the Graduated Payment Loan, and Other Loan Arrangements Chapter 43 The Adjustable Rate Loan, the Graduated Payment Loan, and Other Loan Arrangements INTRODUCTION When interest rates are generally stable from year to year, the fixed-rate amortized loan works

More information

Also in 2013 MIP Will No Longer Expire Currently MIP Expires in five years and when loan to value drops to 78%

Also in 2013 MIP Will No Longer Expire Currently MIP Expires in five years and when loan to value drops to 78% FHA MORTGAGE INSURANCE PREMIMUM (MIP & UFMIP) FHA charges Two Mortgage Insurance fees on each loan; Up Front Mortgage Insurance Premium (UFMIP) typically financed in the loan and Annual mortgage Insurance

More information

Table of Contents Reverse Mortgage O verview... Reverse Mortgage K ey Questions... 5 Reverse Mortgage Pros and Cons... 7 Reverse Mortgage Borr

Table of Contents Reverse Mortgage O verview... Reverse Mortgage K ey Questions... 5 Reverse Mortgage Pros and Cons... 7 Reverse Mortgage Borr 1 Table of Contents Reverse Mortgage Overview... Reverse Mortgage Key Questions... Reverse Mortgage Pros and Cons... Reverse Mortgage Borrower Qualification... Reverse Mortgage Key Items... Reverse Mortgage

More information

Account a service provided by a bank allowing a customer s money to be handled and tracks money coming in and going out of the account.

Account a service provided by a bank allowing a customer s money to be handled and tracks money coming in and going out of the account. Account a service provided by a bank allowing a customer s money to be handled and tracks money coming in and going out of the account. Account fee the amount charged by a financial institution for the

More information

When calculating your monthly loan payments, the interest rate, and not the APR, is used.

When calculating your monthly loan payments, the interest rate, and not the APR, is used. FAQ on Mortgages RATE The posted interest rate is the actual rate used to calculate your monthly loan payment. The interest rate that you will be charged on your loan is set once you have completed our

More information

Section D. Reverse Mortgage Loan Features and Costs Overview

Section D. Reverse Mortgage Loan Features and Costs Overview Section D. Reverse Mortgage Loan Features and Costs Overview Contents This section contains the following topics: Topic See Page 1. Types of Reverse Mortgage Products 5-D-2 2. Reverse Mortgage Loan Limits

More information

Converting Home Equity into Income: A Reverse Mortgage Review

Converting Home Equity into Income: A Reverse Mortgage Review Converting Home Equity into Income: A Reverse Mortgage Review Are you interested in the possibility of converting equity in your home into cash without having to move or assume debt that has to be currently

More information

HOUSING FINANCE AND LOW-INCOME HOUSING TAX CREDITS. September 2012 With gratitude to Kathleen Foster

HOUSING FINANCE AND LOW-INCOME HOUSING TAX CREDITS. September 2012 With gratitude to Kathleen Foster BASIC AFFORDABLE HOUSING FINANCE AND LOW-INCOME HOUSING TAX CREDITS September 2012 With gratitude to Kathleen Foster Public Housing Finance Today Conventional Public Housing Finance: Capital and operating

More information

BUYER'S DISCLOSURE STATEMENT

BUYER'S DISCLOSURE STATEMENT Marin County Below Market Rate Home Ownership Program BUYER'S DISCLOSURE STATEMENT Buyer(s): Property Address: Name of Development: Local Jurisdiction: Income Category of Unit: Purchase Price: NOTICE:

More information

Help to Buy Buyers Guide

Help to Buy Buyers Guide Help to Buy Buyers Guide Homes and Communities Agency http://www.homesandcommunities.co.uk/helptobuy Page 1 of 27 Key information Buyers using this scheme must provide security in the form of a second

More information

BORROWER Q&AS. 2. I'm current on my mortgage. Will the Home Affordable Refinance help me?

BORROWER Q&AS. 2. I'm current on my mortgage. Will the Home Affordable Refinance help me? MAKING HOME AFFORDABLE BORROWER Q&AS 1. What is Making Home Affordable" all about? Making Home Affordable is part of President Obama's comprehensive strategy to get the housing market back on track. Through

More information

Reverse Mortgages A Source of Funds for Retirement?

Reverse Mortgages A Source of Funds for Retirement? Reverse Mortgages A Source of Funds for Retirement? Many people make it a goal of their financial lives to invest in a home. It is a great accomplishment when that last mortgage payment is made. Can a

More information

Reverse Mortgages Reviewed in Recent AARP Report

Reverse Mortgages Reviewed in Recent AARP Report Richard A. Courtney, CELA Certified Elder Law Attorney 4400 Old Canton Road, Suite 220 Jackson, Mississippi 39211 601-987-3000 or 1-866-ELDERLAW For more Articles, go to: www.elderlawms.com Reverse Mortgages

More information

FINAL BILL REPORT EHB 1311

FINAL BILL REPORT EHB 1311 FINAL BILL REPORT C 149 L 09 Synopsis as Enacted Brief Description: Regulating reverse mortgage lending practices. Sponsors: Representatives Kirby, Bailey, Morrell, Sullivan, Kenney, Simpson and Nelson;

More information

5+ Key Components To Most Adjustable Rate Mortgages

5+ Key Components To Most Adjustable Rate Mortgages 5+ Key Components To Most Adjustable Rate Mortgages 1. Index rate The rate to which the interest rate on an adjustable rate loan is tied. One of the more popular indexes used is the 1-year U.S. Treasury

More information

Options for Obtaining Cash from Your Home s Equity Last update: May 16, 2014

Options for Obtaining Cash from Your Home s Equity Last update: May 16, 2014 Summary Options for Obtaining Cash from Your Home s Equity Last update: May 16, 2014 For most people, it is better not to tap your home equity unless you need to, but there are circumstances when it may

More information

What does it mean? A Glossary of terms. Home Ownership Fact Sheet. Housing Programs Department of Housing and Public Works

What does it mean? A Glossary of terms. Home Ownership Fact Sheet. Housing Programs Department of Housing and Public Works Home Ownership Fact Sheet What does it mean? A Glossary of terms There are many words that are specific to property buyers, sellers and lenders. This list is designed to explain some of these words which

More information

SMART INVESTOR RE/MAX NORTH CENTRAL

SMART INVESTOR RE/MAX NORTH CENTRAL SMART INVESTOR With interest rates and sales prices at historically low levels, it might be the right time to make the move and turn your investment dreams into a reality. RE/MAX NORTH CENTRAL Outstanding

More information

Maggie O'Connell Reverse Mortgage Store 800-489-0986

Maggie O'Connell Reverse Mortgage Store 800-489-0986 The Essentials: Reverse Mortgages For many homeowners age 62 and over, a reverse mortgage could be an important tool for financial flexibility. It can provide a way to access part of your home equity to

More information

Mortgage Interest & Tracing Rules

Mortgage Interest & Tracing Rules Mortgage Interest & Tracing Rules By Phil Shaffer, EA, CFP Acquisition Debt Main or second home Acquire Construct Substantially ImproveĀ» Can be additional amounts Must be secured by the home Debt is limited

More information

Complete Guide to Reverse Mortgages

Complete Guide to Reverse Mortgages Complete Guide to Reverse Mortgages Contents I. What Is a Reverse Mortgage? 2 Reasons for taking out a reverse mortgage 2 Differences between reverse and traditional mortgages 2 II. Where to Get Reverse

More information

Presented by Concorde Mortgage Co.

Presented by Concorde Mortgage Co. Presented by Concorde Mortgage Co. Zanesville Office (740) 454-8876 Coshocton Office (740) 623-2995 Toll Free (800) 579-1291 Website: www.concorde-mortgage.com 1) Are You Ready to Buy? 2) Important Financing

More information

What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated?

What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? HOCK international - 2004 1 HOCK international - 2004 2 How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? HOCK

More information

HOMEOWNERSHIP: Understanding What You Can Afford, Mortgages, and Closing Costs. Illinois Association of REALTORS. Springfield, IL 62701

HOMEOWNERSHIP: Understanding What You Can Afford, Mortgages, and Closing Costs. Illinois Association of REALTORS. Springfield, IL 62701 Illinois Association of REALTORS 522 S. Fifth Street Springfield, IL 62701 www.illinoisrealtor.org www.yourillinoishome.com HOMEOWNERSHIP: Understanding What You Can Afford, Mortgages, and Closing Costs

More information