Securing Retirement with Home Equity Conversion Mortgages 2013 Liberty Home Equity Solutions, Inc. All rights reserved For business professional use only. Not intended for distribution to the public.. Retirement Planning Using Home Equity Home Equity: The 4th component Using home equity can help supplement retirement income and provide increased cash flow Provides tax-free cash* Requires no monthly mortgage payments** Homeowners stay in their home & retain title Social Security Retirement Account & Savings Home Equity Pension *Homeowners should consult their tax advisor **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. 2 For business professional use only. Not for consumer distribution. What is a HECM? A Home Equity Conversion Mortgage, HECM, is a loan that an individual can take using the equity that they have built up in their home. Program Features: Improves monthly cash flow by eliminating debt No monthly mortgage payments due 1 Loan proceeds are tax-free 2 Heirs inherit any remaining equity Net proceeds can be accessed in multiple ways Interest may be tax deductible when HECM is repaid 3 1 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. 2 Homeowners should consult their tax advisor. 3 IRS Website - http://www.irs.gov/publications/p936/ar02.html 3 1
Eligibility Youngest borrower must be at least 62+ years of age Homeowner must live in home as primary residence (6 mo. + 1 day) Must be able to pay off their existing mortgage using the HECM loan proceeds Property must be an eligible property type 4 Additional Conditions Borrower(s) must complete a HUD approved 3 rd party counseling session Property must be maintained according to FHA requirements Borrower(s) must continue to pay property taxes and homeowners insurance Lending limit of $625,500 HECM loan must be in first lien position 5 Loan Fees Reverse mortgages have many of the same fee types as a traditional forward mortgage: Loan Origination Calculation to determine amount Fee $6,000 maximum 3 rd Party Closing Appraisal, flood certification, title Costs Examples insurance, notary, courier, recording, etc. 3 rd Party Varies, depending on state/county Closing Costs 6 2
Reverse Mortgage Specific Fees There are two types of reverse mortgage specific fees, counseling and mortgage insurance premium (MIP): Counseling $75 - $125 average fee HUD provides grant support making it possible to get for free Ongoing Mortgage Insurance Premium 1.25% of loan balance annually Upfront Mortgage Insurance Premium.5% or 2.5% of max claim amount (depending on mandatory obligations) 7 HECM Loan Amounts Net Proceeds Equity Available (Principal Limit) $320,000 $310,000 $300,000 $290,000 $280,000 $270,000 $260,000 $250,000 $240,000 $230,000 Example: $500,000 Home Value At Age 62, 72 & 82 $263,000 $287,500 $310,500 62 72 82 8 Source: Liberty Home Equity Solutions, Inc., Quote Packages October 7, 2013. illustrative purposes only. We do not guarantee applicability or accuracy in regard to client s individual situation or circumstance. Information contained within this strategy is not intended to replace qualified, professional investment and/or tax advice. Accessing Funds 9 3
Disbursement Options - Fixed Fixed Rate Loan: With a fixed rate HECM, all proceeds available in the first 12 months are disbursed to the client at funding. No additional funds will be made available. 10 Disbursement Options - ARM Lump Sum: Credit Line: amount of Monthly Disbursements: of time (Tenure). Does balance until used.* Combination: Draw some of the available cash at closing* Access money when they need it. Does not add to loan balance until used. Available borrowing power can grow.* Guaranteed monthly disbursements. Disbursements set for a specific period (Term) or for the life of the loan not add to loan Choose 1, 2 or all 3 options simultaneously* (changing disbursements also available) *HUD limits amount of first year withdrawal to 60% of the principal limit or the borrowers mandatory obligations + 10%, whichever is greater. 11 LIBOR Disbursement Line of Credit $800,000 Example: $500,000 Home Value 62 Year Old Borrower $760,298 $700,000 Available Line of Credit $600,000 $500,000 $400,000 $300,000 $252,497 $364,613 $526,511 $200,000 At age 62 + 10 Years + 20 Years + 30 Years Line of Credit growth over the course of 30 years Source: Liberty Home Equity Solutions, Inc., Quote Packages October 7, 2013. For business professional use only. Not for consumer distribution. The preceding example and any calculations therein are hypothetical and are for illustrative purposes only. We do not guarantee applicability or accuracy in regard to client s individual situation or 12 circumstance. Information 4
LIBOR Disbursement Tenure Payments $600,000 Example: $500,000 Home Value 62 Year Old Borrower $523,350 Total Payments Received $500,000 $400,000 $300,000 $200,000 $100,000 $174,450 $348,900 $0 10 Years 20 Years 30 Years $1453/Month Throughout Retirement Source: Liberty Home Equity Solutions, Inc., Quote Packages Oct 17, 2013. For business professional use only. Not for consumer distribution. The preceding example and any calculations therein are hypothetical and are for illustrative purposes only. We do not guarantee applicability or accuracy in regard to client s individual situation or 13 circumstance. Information HECM Strategies for Retirement 1 4 Hedge Against Home Declines $600,000 Impact on HECM LOC in declining housing market $500,000 $500,000 $530,604 $400,000 $300,000 $424,483 $338,779 $282,645 $200,000 $252,497 $271,751 $271,669 $100,000 $0 62 63 64 65 66 67 68 69 70 Line of Credit Home Value Amount available dependent on home value No monthly mortgage payments required Available LOC balance will continue to grow if no draws are taken, regardless of home value Source (LOC): Liberty Home Equity Solutions, Inc., Quote Packages October 7, 2013. Source (Home Values): No supporting documentation available. Declining home values are based on assumptions due to the economic climate in recent years. 15 5
Case Study - Deferring Social Security Client Facts: Solution: 62 year-old clients need to retire due to health issues. $200,000 in retirement account, relying on social security. Claiming social security now will not provide enough income. Home value is $500,000. No current mortgage. Use a HECM to increase cash flow to a sufficient amount to allow them to retire now, but wait until age 70 to claim social security. 16 Claiming Social Security Monthly Disbursements By Age Monthly Social Security Payments $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $3,447 $2,437 $1,958 62 65 70 Age of Claiming Social Security Source: AARP online social security website calculator. $40,000 avg salary for one spouse, $20,000 avg salary for other spouse. For business professional use only. Not for consumer distribution. The preceding example and any calculations therein are hypothetical and are for illustrative purposes only. We do not guarantee applicability or accuracy in regard to client s individual situation or circumstance. Information contained within this strategy is not intended to replace qualified, professional investment 17 and/or tax advice. Deferring Social Security Monthly Reverse Mortgage Payments $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $1,453 Tenure @ 62 SS = $1958/Month @ age 62 SS = $3447/Month @ age 70 HECM Options $2,016 8 year term w/100k LOC $3,338 8 year term w/out LOC Source: Liberty Home Equity Solutions, Inc., Quote Packages October 17, 2013. For business professional use only. Not for consumer distribution. The preceding example and any calculations therein are hypothetical and are for illustrative purposes only. We do not guarantee applicability or accuracy in regard to client s individual situation 18 or circumstance. Information 6
Case Study Stretching Retirement Account Client Facts: 62 year-old clients, $500k retirement account, home value $500k, current mortgage $0. Assumptions: Need $40k (plus SS) in first year, 3% annual cost of living inflation,15% tax bracket, S&P 500 annual returns (1983 2012) used for ROI Solution: Use HECM funds to offset increase cost of living expenses to extend portfolio. 19 HECM Solution Stretching Retirement Account No HECM With HECM $2,000,000 $1,800,000 $1,600,000 Account Balance $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 Age Savings Stretch From 18 to 30+ Yrs Source: Calculations based on assumptions listed on previous slide. For business professional use only. Not for consumer distribution. The preceding example and any calculations therein are hypothetical and are for illustrative purposes only. We do not guarantee applicability or accuracy in regard to client s individual situation or circumstance. Information 20 Case Study Allow Retirement Account Rebound Client Facts: 62 year-old clients, $500k retirement account, home value $500k, current mortgage $0. Need $40k (plus SS) in first year Assumptions: Need $40k (plus SS) in first year, 3% annual cost of living inflation,15% tax bracket, S&P 500 annual returns (1983 2012) used for ROI Solution: Use HECM funds to during S&P 500 down years to allow value of assets in retirement account to rebound. 21 7
HECM Solution Retirement Account Rebound $1,400,000 40.00% Account Balance $1,200,000 $1,000,000 $800,000 $600,000 16.81% 17.62% 8.03% 2.34% -9.85% 21.27% 34.11% 31.01% 30.00% 26.38% 23.45% 20.26% 20.00% 13.62% 12.78% 10.00% 3.00% 3.53% 0.00% -10.14% -10.00% -20.00% -23.37% S&P 500 Returns $400,000-30.00% $200,000-38.49% -40.00% -50.00% $0 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 Age : Living expenses drawn from retirement account : Living expenses drawn from HECM LOC Line of Credit balance = $400,000 at age 93-60.00% Source: S&P 500 from 1983 2012 and calculations based on assumptions listed on previous slide. For business professional use only. Not for consumer distribution. The preceding example and any calculations therein are hypothetical and are for illustrative purposes only. We do not guarantee applicability or accuracy in regard to 22 client s individual situation or circumstance. Information Case Study Defer Drawdown Until RMD Client Facts: 62 year-old clients, $500k retirement account, home value $500k, current mortgage $0. Need $40k (plus SS) in first year Assumptions: Need $40k (plus SS) in first year, 3% annual cost of living inflation,15% tax bracket, S&P 500 annual returns (1983 2012) used for ROI Solution: Use HECM funds to delay draws from retirement account until RMD is required. 23 HECM Solution Defer Drawdown Until RMD $3,000,000 No HECM With HECM Account Balance $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 HECM LOC covers expenses through age 68 RMD exceeded necessary expenses age 78-89 $770k remaining in retirement acct @ age 93 $415k left in LOC if excess RMD paid back into RM Age Source: Calculations based on assumptions listed on previous slide. For business professional use only. Not for consumer distribution. The preceding example and any calculations therein are hypothetical and are for illustrative purposes only. We do not guarantee applicability or accuracy in regard to client s individual situation or 24 circumstance. Information 8
RIGHT-SIZING THE HOUSE 25 Right-Sizing the Home Example Client Facts: 70 years-old $500,000 current home $0 existing mortgage $350,000 new home Does not want any monthly mortgage payment with new home 26 Right-Sizing the Home Example No HECM Sales price existing home: $500,000 Selling costs (commission, fees etc.): $40,000 Net proceeds: $460,000 New home price: $350,000 Remaining funds: $110,000 27 9
Right-Sizing the Home Example HECM Net proceeds from home sale: $460,000 New home price: $350,000 HECM for Purchase funds: $197,400 Borrower funds to complete purchase: $166,853 (includes loan closing costs) Remaining funds: $293,147 Source: Liberty Home Equity Solutions, Inc., Quote Packages October 16, 2013. illustrative purposes only. We do not guarantee applicability or accuracy in regard to client s individual situation or circumstance. Information contained within this strategy is not intended to replace qualified, professional investment and/or tax advice. 28 Summary Transaction similar to home refinance It s Flexible Fixed or adjustable rate Proceeds may be accessed in multiple ways and borrowers can change disbursement methods 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 monthly mortgage payments Purchase a home (right-size or move to retirement friendly community) 29 For business professional use only. Not for consumer distribution. Thank you for your time. Robert Tollin Reverse Mortgage Specialist NMLS# 403892 Tel: 516.414.6650 Cell: 516.652.8371 Fax: 866.752.8650 Rtollin@mldmortgage.com MLD Mortgage Inc. d/b/a The Money Store 1900 Hempstead Turnpike, Suite 206, East Meadow, NY 11554, 516.227.2500 NMLS# 1019 Licensed by the NJ Department of Banking License# 9917842. Licensed by the NY Banking Department License# B500824. Not all applicants may qualify. Some products may not be available in all states. Program, rates, terms and conditions apply. All rights reserved. Equal Opportunity Lender. See www.themoneystore.com/statelicensing for state licensing information. www.mnlsconsumeraccess.org and www.themoneystore.com/privacy-policy For business professional use only. Not for consumer distribution. 10