How To Understand The Comparisons Charts For A Reverse

Jan. 2, 2009 - PRLog -- The Most important thing for a senior to understand is the comparison charts of a Reverse Mortgage, before they make a selections as to which program they are going to pick. Once they make a selection this is a fixed program. It is very important that they understand the differences between each one.

The selection is done prior to receiving an approval and closing the choices, are very distinct and different.
 
The number after the heading is the margin which is added to the index or the interest calculation standard.

The indexes can either be the LIBOR or the US TREASURY BONDS. They either can be the monthly or the annual rate added to the margin or it can be a fixed rate.

The different companies also have proprietary programs that may call them under a specific name but they fall under the FHA guide lines and have the same makeup the following are the plans.

•HECM 175 which is 175 basis points added to the index and adjusted on a monthly basis.
•HECM 150 which is 150 basis points added to the index which is calculated most times on an annual basis.
•HECM Fixed is a fixed rate that is consistent for the term of the loan.
Now lets look at the difference between them, because they are very different and also control how much money you receive at the closing.
Components of the Loan

You will find the following terms on the Reverse Mortgage Comparison sheet:  
•Initial Interest Rate: this rate is based on the 1 year Treasury Bill plus margin points.  This will be the interest rate for the first month of the loan.  For the life of the loan, the borrower is guaranteed never to pay ten points more than initial interest rate. This guarantee is called the interest rate cap.  
•Expected Interest Rate: this rate is based on the 10 year Treasury Bill and determines the amount of proceeds the borrower will receive. This rate is based on the 10 year T-Bill because it is more stable and provides greater proceeds to the borrower.
•Interest Rate Cap: ensures that the borrower will never have to pay more than their home is worth.  The cap is set for ten points more than the initial interest rate. For example, if the client signs for 5.43% today and in five years interest rates rise to 20%, the client will only pay 15.43%.  
•Monthly Service Fee:  to service the loan, Live Well Financial charges the borrower $35/month for the life of the loan.  The total amount of the monthly service fee is given in the service set aside fee.
•Estimated Home Value:  the estimated value of the borrower’s home acquired through research sources.  This value is only an estimate and an exact value will be granted through a professional Federal Housing Administration (FHA) approved appraisal.  
•Lending Limit:  the maximum amount of the borrower’s home value that Live Well Financial is allowed to use in the reverse mortgage process.  FHA sets a lending limit of $417,000 however, the county limit has been done away with and is no longer a factor.
•Percentage:  the percentage of the borrower’s estimated home value that may be used for the reverse mortgage.
•Credit Line Growth Rate:  the rate at which the proceeds in the line of credit grows.  This amount will always be 0.5% more than the initial interest rate.
•Principle Limit:  the amount of the borrower’s home value that will be used in the reverse mortgage. This amount will be used to cover the monthly service charge, “closing costs,” pay the remainder of your mortgage, and given to the borrower in proceeds. This amount is only a percentage of the borrower’s home value so that the home may retain some of its equity.  Please reference the available principle limit, net principle limit, and net available to you to calculate how much you will receive after fees and lien payment.
•Service Set Aside:  Amount removed from Principal Limit that theoretically represents the amount of proceeds that will be used to pay the monthly service fee payments through the life of the loan. It is not used except for $35 each month while applied to the balance each month.
•Available Principle Limit:  the amount of the borrower’s home value that may be used after the service set aside fee.  This value is the proceed amount before “closing costs” and lien payoffs.  
•Closing costs”: these are the fees that are associated with all home mortgage transactions and are standard in this practice.  Such fees include loan origination, title abstract, state and local taxes, appraisal fees, and insurance premiums.  For a total list of fees, please reference your Good Faith Estimate.  
•Net Principle Limit:  the amount of the borrower’s home value that may be used after closing costs.  This is the amount before the borrower’s liens are paid.  
•Debt Advance Payoff:  the total amount of lien’s against the borrower’s property.  This includes any mortgages, taxes or judgments.
•Net Available to You:  the amount of the borrower’s home value that they may receive as proceeds. The borrower may access these funds in one of four ways: 1) a lump sum, 2) monthly annuity checks, 3) in a line of credit, or 4) a combination of the three. This choice is left solely to the borrower.

The main purpose is to always make sure that the senior fully understands the differences between all plans. The lower the initial start rate the more money is available at closing. The Reverse Mortgage is one of the greatest financial tools ever created for the senior homeowner and can make the difference between sink and swim in their retirement.

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As a company we Equitable Reverse Mortgage, only work to help seniors and their families who are over the age of 62 to acheive some sort of financial stability in these tought economic times. All we do is Reverse Mortgages. One stop education source with our Reverse Mortgage Guide