When envisioning a financially secure retirement, people typically don’t consider a reverse mortgage in their planning process. Despite the fact that a reverse mortgage can add options and flexibility to their retirement funding strategy, people are still skeptical about its true benefits. For this reason, FAR developed a robust reverse mortgage calculator called the Reverse Illustrator tool, which graphically displays the features of a reverse mortgage over a term of up to 30 years.
With the interactive features of the Illustrator, prospective borrowers have the opportunity to visualize a number of “what if” scenarios, such as; how would the line of credit grow if I were to make payments to reduce an existing reverse loan balance? Or what would happen if interest rates on an adjustable reverse were to hit their rate cap? How would systematic or occasional withdrawals impact the available balances, and what would a tenure payment be if I decided to take one in 20 years?
Figure 1. FAR Reverse Illustrator Scenario
Figure 1. This shows an example of a 62 year old borrower, with a $400,000 home, who puts in place a Reverse Line of Credit, using an annual adjustable product with a 1.875 margin.
For Illustration purposes we have input $18,000 for closing costs. Prospects can point to any time on the graph to view the available line of credit, the accrued loan balance from financed closing costs, and the home value. This helps them to not only see the relationship of costs to benefits over time, but also the value proposition of a growing line of credit.
Figure 2. FAR Reverse Illustrator Scenario
Figure 2. This Illustration shows the same scenario as Figure 1, however we have displayed the impact of a flat real estate value over the 30 year term. In this case, the borrower can see the safety and flexibility that the growing line of credit can have for their retirement income plans, regardless of what happens to the value of the collateral. They can still access funds from the line of credit, or convert any part of it to a tenure payment, regardless of the home value.
In addition to providing financial information for a traditional FHA reverse, the Illustrator also allows users to select from FAR’s proprietary and diverse HomeSafe products, to see which might best suit their particular needs. The HomeSafe products include 3 cash out, fixed rate options, a flexible payout option, the industry’s only 2nd lien position product, and a Line of Credit product. All of these have maximum loan amounts of $4 mill and can quickly, and easily be displayed in the Reverse Illustrator.
While some people may still think of a reverse mortgage as a loan of last resort, the Reverse Illustrator from FAR goes a long way to help change those opinions. The simplicity of the Reverse Illustrator and the powerful graphic displays help to sell the concept that a reverse mortgage, when properly used, can have a powerful impact on a prospective borrower’s retirement plans.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.