Understanding the Reverse Mortgage Quote - All Reverse Mortgage Company®

Hi there, my name is Cliff Auerswald and I am with All Reverse Mortgage Company, and I wanted to put together a quick video that will help walk you through the reverse mortgage quote. The reverse mortgage quote consists of 3 main pages. The first page is called the reverse mortgage comparison And this is a pretty standard format we use in the reverse mortgage industry. So if you are shopping between lenders, you'll see a format that is pretty much in this order. We are required as reverse mortgage lenders, brokers, banks to disclose to you all available reverse mortgage programs. So we use this sheet as kind of like an overview of what you qualify for. In this case, what I've done is I've included both our most popular saver fixed-rate plans and our saver and standard adjustable plans. Now, the main difference between reverse mortgages in general that's gonna separate them quickly is that the fixed rates require you to take all of the available funds as a lump sum after any mortgages are paid off as well. You have to take off or take out all of the cash as a one-time lump sum at the closing. So if you're not prepared to take that kind of money, then you may be interested in the credit line, which is a lot more flexible. You're only charged interest as you borrow on those funds. It is a monthly adjustable rate, but so are all credit lines that you would expect to get at the bank. At the bank, you go get a credit line and it's like prime plus a margin. Same concept on a reverse mortgage. We use margins as well, and then it gets added to an index, which is the 1-month LIBOR indexes. So in this case, what I did is I'm basically just using a fixed-rate Saver. The Saver is actually new. This is FHA's newest version of the reverse mortgage. They still have the regular standard programs, but if you ever talk to your neighbors or friends or you ever heard about reverse mortgages, a lot of people say, "Oh, they're just so expensive." use them as a last resort. And what FHA did was they, they cut the closing costs down to a point where they really do look as attractive as a normal mortgage. And if you're a senior on fixed income, you want the flexibility or choice not to make mortgage payments if you don't have to, make them when you want to, the reverse mortgage, especially the Saver Plan, is a great way to go. The Saver, basically because they're waiving this upfront mortgage insurance premium, so they set the limits just a little less than what the Standards offer. So if you're looking for the most amount of money you can get, you're going to probably be looking at the Standard plan. It provides a little bit of a higher limit than the Saver. Same thing with the credit line options. You can get a credit line set up and the upfront mortgage insurance premium is waived. And you'll just have the standard third-party closing costs. Now this loan comparison sheet, I'm using a fixed rate and I have the Fixed Rate Saver highlighted. So when I get to the amortization schedule in this video, what you're gonna see is everything that's based on this program. But what we do is when we run quotes for our potential customers, clients, what we do is we include amortization schedules and closing cost worksheets on each program and we separate them. So anyway, I'm just going to go down the line here. The way the reverse mortgage proceeds work, we call a principal limit, is what you would know as a loan amount. So in this case, if you had a property that was appraised at $250,000, you get a certain percentage on your age, and in this case your loan amount would be $142,000 on the saver, $175,000 on the standard. What we do is we deduct the required closing costs from the loan. We have a $500 discount right now. You may want to check back. This video is going right into 2012. We usually get interest rates and fee set changes maybe every 3 or 4 months. So at this time there's a $500 charge for the interest rate, and then we also deduct the $1,902 here that you see which is— represents one line, represents all of your third-party closing costs that are financed, which include the escrow, the title, the recording fees, all those third-party standard, what people call junk fees on mortgages. And then what you have at the ending is a one lump sum figure after all the closing costs. This is our net line, $168,000 on the standard, a little more And on the credit lines, these are net figures that you can work with. You can get a credit line, uh, that grows in availability, which is, uh, something I could talk about later in another video. Um, or you can schedule a monthly payment. Like I said, the adjustable rates have a lot more flexibility. You can do combinations. You can do like half credit line, half monthly payments. Uh, you can really tailor it to, um, your specific needs. So Moving on, this is the loan comparison, just a general overview of all the available programs on one sheet. The next page, what we use is called the Estimate of Closing Costs Worksheet. In some ways, we— people believe or think that this is a good faith estimate. The good faith estimate, there's new laws that changed with mortgage disclosures, and actually the official good faith estimate is actually not even provided to you until you take your application, but we do our due diligence and make sure that we're disclosing you accurate third-party closing costs when we prepare your quote. We call all of our vendors and make sure that our title fees are right and the credit reporting fees and escrow and all that stuff is accurate. In this case, this client on the Saver Plan has a total finance closing cost of $2,402, and the total fees are actually $2,842, and that's because the appraisal fee is on the POC section. POC stands for Paid Outside of Closing. So what we usually do when we take an application is we take our client's credit card and we bill your credit card for the appraisal, because if you were to cancel the loan for any reasons, we are actually not charging any type of cancellation fees or application fees, nothing like that. But if you do cancel for whatever reason, the— at least the appraiser's invoices have been paid and Uh, that's basically your only, uh, skin in the game when you apply for a reverse mortgage, or I believe other mortgages. We only do the reverse mortgage, but I think that's industry standard nowadays. So all finance closing costs in this section are $2,402, and if you went with the standard program, you'd see some higher fees. The upfront mortgage insurance premium on the standard program is 2% of your appraised value. So you'd have an extra— in this case, an extra $5,000 in closing costs if you were to opt for the standard version versus the saver plan. Moving along is the amortization schedule. This is one of the most important documents, and I'll that you're going to see in your reverse mortgage set. Even though interest is added monthly to your loan balance, you'll get a monthly mortgage statement, it'll break it all down for you. You see the note rate and then you'll see this extra 1.25% that gets added for ongoing mortgage insurance premium. Even though you have a monthly idea of what's going on, the amortization schedule is nice to look out, you know, years down the road. And when you're looking out at your reverse mortgage balance, year 5, year 10, this is 100% accurate assuming that you have not made any type of repayment back to the reverse mortgage. Most people don't even think about this, but you could certainly make any type of voluntary repayment towards the interest on the reverse mortgage. The only thing is that, you know, the reverse mortgage is kind of designed to automatically defer the interest. But you could certainly apply payments back. There's no penalty whatsoever. But if you're gonna look at the amortization schedule, know that this is gonna assume that you have deferred all interest. So where you started off with a loan balance of $142,000, after year 5 that became $189,000. After year 10, that became $252,000. And basically that's how the banks make their money on the reverse mortgages. The mortgage insurance is included in that loan column. The interest from the note rate is included in that column, but it is all broken down on an annual basis so that you can see what is going to what. And like I said, you get the monthly statement. It's just good to look for, you know, years down the road. Maybe you might need to move or downsize, sell, refinance. It's good to to have an idea of what your balance is going to be. And the rest of this stuff, you know, I kind of tend to ignore the property value column. In this real estate market, we're not seeing any much appreciation in the majority of the counties in the US. So, um, but when the program was first developed, uh, the industry set a standard of 4% appreciation when they're, you know, looking at on an outlook of the property, uh, to show you how much equity you may still have. Whatever your property value does, it's your equity. So it could be, you know, no appreciation, or you can go 10, 20%, it really doesn't matter. As far as the loan program is concerned, this is really just for illustration purpose. The main aspect of the reverse mortgage amortization schedule is definitely the loan balance section. And then when you're shopping the terms from lender to lender, you can compare this year after year. And that will give you a better idea of who's charging you less interest and closing costs. So this is the amortization schedule, and this is just the first video series of many more to come. This, I hope, helped you. If you have any questions, please drop us a line. Our email address is customercare@allrmc.com, or you can check out our YouTube channel where we'll be posting many more videos at youtube.com/allrmc. \allreverse. Have a great day!