A GUIDE TO. reverse mortgages. Live the retirement you dreamed

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1 A GUIDE TO reverse mortgages Live the retirement you dreamed

2 Guide Content 14What Is A Reverse Mortgage? 24How Do I Qualify? 34 What Can A Reverse Mortgage Be Used For? 44How Much Money Could I Qualify For? 54Common Questions 64Consumer Safeguards 74Borrower Responsibilities 84Process 94Are You A Loved One? 104Reverse Mortgage Benefits 2

3 1. What is a reverse mortgage? A reverse mortgage, also called a Home Equity Conversion Mortgage (HECM), is a way to turn the equity locked in your home into tax-free cash (consult your financial advisor) without having to make any monthly mortgage payments other than taxes and insurance. The funds you receive can be used for almost anything, including paying off your existing mortgage (required as part of the loan), eliminating credit card debt, medical and other bills, or simply improving your lifestyle. A reverse mortgage is a government-insured loan that enables you to gain financial independence from your ever-increasing living expenses. The most important thing to remember is that the bank NEVER owns your home. You continue to own your property and can live there as long as you wish. All you need to do is maintain the property and continue paying your home insurance and property taxes. 93% of borrowers said that a reverse mortgage had a positive effect in their lives AARP National Survey of Reverse Mortgage Shoppers reverse mortgage guide 3

4 My Reverse Mortgage Professional went through the whole process with me. Her kindness and thoughtfulness was amazing and I truly appreciate it. I don t have to pay a mortgage payment each month, and I got some cash on top of it. I felt like I had nothing to worry about and that everything would be taken care ofand it was! John H., PA I want to thank you for helping me obtain a reverse mortgage. It has been 3 months and now I have peace of mind knowing that the money is here when I need it. I was able to pay down my credit card debt, get my car repaired, and make home improvements around the house. Ann E., VA Six months ago, I didn t know what to do. With a Reverse Mortgage, I was able to pay off the house. Today I am retired and live a very stable and happy life. Thank you. Gregg L., Oregon I ve regained my independence and more than that, I can keep my home with all its beautiful memories. 4 Helen N., Pennsylvania

5 2. How do I qualify? It s simple and easy qualification is based on these important factors: 4 You must be 62 years old or older, and 4 You must live in and own your home (must be your principal residence). Then your age, appraised home value, and current interest rates are used to calculate the amount you may receive. There are some other factors you should also understand: 4 The property must be FHA approved. 4 Qualification is based on the youngest borrower on title. 4 Principal residence means that you must reside at the property for six months and one day per year. 4 You must continue to pay property taxes, home insurance, and continue to maintain the property. 4 Reverse mortgages can be used to pay off existing mortgages on your home. In fact, if you have a traditional mortgage, it is required that you pay this mortgage off with the proceeds of your reverse mortgage loan. reverse mortgage guide 5

6 3. What can a reverse mortgage be used for? The proceeds from a reverse mortgage can be used for almost anything: 4 Increase monthly cash flow 4 Pay off an existing mortgage (required as part of the loan) 4 Pay credit card bills 4 Pay medical bills 4 Fund home repairs and improvements 4 Pay property taxes and home insurance 4 Travel 4 Gifts 4 Improve your lifestyle 4 In home care 6

7 4. How much money could I qualify for? Your age, appraised home value, and current interest rates are used to calculate the amount you may receive. One of the benefits of a reverse mortgage is the older you are the more money you qualify for. For example if your home value is $300,000 the amount you may receive is based on your age: 62 $148,477* 72 $163,177* Age Age Age Lending Amount Lending Amount Lending Amount 82 $176,977* * The example above is as of 10/9/2013 and represents typical extensions of credit for a standard HECM loan at a fixed interest rate of 5.06%. Loan Origination fee of up to $5,000 applies, depending upon the Property Value, and other closing costs in an approximate amount of $2,500 also apply as well an Up-Front Mortgage Insurance premium payable to HUD of 1.25% of the Property Value. Reverse mortgages have enabled older homeowners to address a range of needs and desires with a high level of initial satisfaction AARP National Survey of Reverse Mortgage Shoppers reverse mortgage guide 7

8 5. Common Questions Reverse mortgages are a safe and secure financial tool, but sometimes a few misconceptions come up. Let s go over some common questions and concerns so you can understand the facts. Q // Does the bank own my home? A // No, the bank never owns your home. You remain the owner of your home and can stay as long as you wish. As the homeowner, you must continue to pay home insurance, property taxes and keep up basic home maintenance during the loan period that s it. When the home is sold, the loan is repaid (including accrued interest and any fees) and any remaining equity goes to you or your heirs. Q // How much can I borrow? A // Three factors are considered to calculate how much equity you can access: 1. The age of the youngest borrower 2. Home value 3. Current interest rates Although we use the home value you initially provide us to calculate the preliminary loan amount, an independent appraiser must visit your home to ascertain the current value of your home. We then re-calculate the loan amount according to this official home value. 8

9 Q // What if I have a mortgage already? A // That is absolutely fine. If you qualify, a reverse mortgage will first pay off your existing mortgage and then give you the remaining proceeds. In fact, many of our borrowers use a reverse mortgage for that purpose to eliminate monthly payments on their traditional mortgage. Q // Are there any income/credit score requirements? A // No, because you do not make monthly payments other than taxes and insurance, proof of income and credit score are not required. A credit report will only be used to check if any federal tax liens or other items may affect qualification. Q // Will my children lose their inheritance? A // The loan is repaid once the last remaining borrower moves out of the home. Normally, the home is sold, the loan (including interest and any fees) is repaid, and any remaining equity goes to you or your heirs. If your children choose to keep the home, they can pay the loan back, perhaps by refinancing the reverse mortgage. Q // Does a reverse mortgage require that I make monthly payments? A // No, there are never any monthly mortgage payments. However, payment of taxes, insurance and general upkeep of the home are the responsibilities of the homeowner. The loan becomes due when the last borrower permanently moves out of the home. reverse mortgage guide 9

10 6. Consumer Safeguards Consumer safeguards are created to ensure you and your family understand how a reverse mortgage works. Here are just a few of the important consumer safeguards put in place for your benefit: Counseling 4 U.S. Department of Housing and Urban Development requires all HECM (Home Equity Conversion Mortgage) reverse mortgage applicants to undergo third party counseling so that you feel completely comfortable with the process and understand all your options. No Prepayment Penalty 4 You can choose to repay the loan at any time without incurring any additional costs. Non-Recourse Loan 4 A non-recourse loan protects you from being held liable for the loan beyond the value of the home. The FHA insurance covers any further financial obligation to the lender. You cannot be forced to sell or leave your home, even if your loan balance (including interest and mortgage insurance premium) exceeds the value of the property. HUD Fee Limitations 4 The loan origination fee is regulated by the U.S. Department of Housing and Urban Development. 10

11 7. Borrower Responsibilities 4 Taxes and Insurance You are required to remain current on your property taxes, home insurance, and if applicable, condo fees and homeowner association fees. 4 Property Maintenance You are responsible for completing mandatory repairs and basic home maintenance during the life of the loan. 4 Occupancy Requirements The home must be your principal residence. 90% o f s e n i o r s want to stay in their homes and age in place National Council on Aging, United Healthcare, and USA Today national survey. reverse mortgage guide 11

12 The peace of mind and flexibility the Reverse Mortgage offered me is immeasurable. 12 Danny W., Washington

13 8. Process 4 Step 1 Education The first step is to find out more about reverse mortgages. The best way to understand if a reverse mortgage suits your specific situation is to call your reverse mortgage professional. No question is too big or too small. Your reverse mortgage professional will also walk you through a no obligation snapshot of your situation, how much you may qualify for, and then help you decide the next best step. 4 Step 2 Counseling and Application In order to safeguard your interests, HUD requires all HECM (Home Equity Conversion Mortgage) reverse mortgage applicants to undergo reverse mortgage counseling. During this time your application will be completed. 4 Step 3 Processing and Approval Your reverse mortgage professional will help you schedule an appraisal to determine the value of your property a standard practice for any mortgage application. The appraisal will then be added to your application and submitted for underwriting review. 4 Step 4 Closing A closing agent will contact you to sign the final documents and discuss how you would like to receive your funds. reverse mortgage guide 13

14 9. Are you a loved one? A reverse mortgage can help care for a loved one by using the funds to modify the home, pay for in home care, increase safety, cover health costs or provide a much needed break. Family Responsibilities: The loan becomes due upon the last borrower leaving the home. If you re the heir to the home, you have the right to sell the home, refinance, or keep the home and use other assets to repay the loan. The lender never obtains title. After loan repayment (including interest and fees) any leftover equity is yours to keep. The smile they have on their faces, with the home improvements they are now able to pursue and the medical care they can afford, is just breathtaking. 14 Daughters of Mary & Alvin, LA

15 10. Reverse Mortgage Benefits There are numerous benefits to obtaining a reverse mortgage over other types of loans or financial products. Important reasons to consider a reverse mortgage: 4 Make no monthly mortgage payments for as long as you live in your home. All you need to do is maintain the property and continue paying your home insurance and property taxes. 4 Continue to live in the comfort and security of your own home. 4 Receive tax-free cash (consult your financial advisor). 4 Choose how you want to receive the money lump sum, monthly payment or a combination of both. 4 Repay the loan at anytime with absolutely no penalty. 4 It is a non-recourse loan, which means you will never owe more on the loan than the house is worth. 4 Low interest rates. 4 No income or credit score requirements. Let your home work for you with a reverse mortgage. reverse mortgage guide 15

16 A GUIDE TO reverse mortgages Find out how much cash you may qualify for. Contact your reverse mortgage professional today! 2013 American Advisors Group