Retire at 62????? Monte Carlo Scenario explains HOW

GOAL:  Retire at age 62

Profile:  US Citizen - Age 61.5 - Marital Status: Single -

Social Security Benefit: Earning Basis

Scenario 1: without reverse mortgage         Scenario 2:  with a reverse mortgage

Income total:                         $75,000             Income total:                  $75,000

1.  Salary (100% taxable)              75,000   1. Salary  (100% taxable)   $75,000

Begins at 61, ends at 62                                      Begins at 61, ends at 62

2. Social Security Monthly          1,222     2.  Social security amount    $2,141

FV 85% taxable                                                 FV 85% taxable

Annual increase                                   2%        Annual increase                      2%

Begins at 62, ends at 90                                   Beings at age 70, ends at 90

                                                                      3. Reverse Mortgage Monthy Amount

                                                                          (PV, 0% taxable)                       $1,223

                                                                           Annual increase                              2%

                                                                The income begins at age 62,ends at age 70

Expenses                               Annual Total            Assets

Housing                                             $7,800          Home value

Transportation                                     5,400         Mortgage or liens

Food, beverage, clothing,

personal care, cash                           9,900            Home equity  $0

Medical                                               7,200          Bank Accounts $0

Entertainment                                      5,900          Qualified Retirement Accounts   $300,000

Other                                                  1,300          Investment acounts                    $200,000

                                                                                  Total Market Value                 $500,000

                                                                              Liabilities: $0 Life insurance: NONE

                           Description            Required need      Desired Need             Total Need

RETIREMENT

Needs               Housing                       $8,034                       $0                           $8,034

                           Transportation              5,562                                                         5,562

                           Food, clothing etc     $10,197                                                    $10,197

                           Medical                           7,416                                                      7,416

                           Entertainment                     $0                  $6,077                        $6,077

                           Other                               2,575                                                     2,575

                           tax on prior yr returns   4,375                                                        4,375

                  TOTAL                                $38,159                  $6,077                      $44,236

Has objective been met?                            Has objective been met?

Scenario 1:  Without a Reverse                  Scenario 2:  With a Reverse

Based on the analysis of your retire          Based on the analysis of your retirement

ment income needs, expected                    income needs, expected income sources

income sources and available                    and available assets, your retirement

assets, your objective will be                      income objectives will be completely

will be satisfied until age until                    satisfied.

age 86.  At retirement, additional

funds of $50,386 will be needed.

Scenario 1 (without reverse mortgage): Has Objective been met?

Age     Total      Social        Additional    Needed        Required        Asset   (Shortgage)

             Needs   Security    Income       fm Assets    Distributions   WD      Unmet Needs

61     $47,100       $0          $47,100           $0                       $0                 $0            $0

62       42,738    12,321               0          $30,307                  0         $30,307             0

63       41,456    12,679               0            28,776                  0            28,776            0

64       45,502    12,933               0            29,569                  0            29,569            0

65       43,572    13,191               0            30,380                  0            30,380            0

66       44,665    13,455               0            31,210                  0            31,210            0

67       45,784    13,724               0            32,059                  0            32,059            0

68       46,927    13,999               0            32,928                  0            32,928            0

69       48,096    14,279               0            33,817                  0            33,817            0

70       49,290    14,564               0            34,725         17,801           16,924             0

71       50,645    14,856               0            35,789         18,479           17,310             0

72       52,036    15,153               0            36,884         19,180           17,704             0

73       53,466    15,456               0            38,010         19,900           18,111             0

74       55,070    15,765               0            39,305         19,855           19,450             0

75       56,722    16,080               0            40,642         19,714           20,928             0

76       58,424    16,402               0            42,022         19,457           22,565             0

77       60,176    16,730               0            43,447         18,974           24,473             0

78       61,982    17,065               0            44,917         18,417           26,500             0

79       63,841    17.406               0            46,435         17,578           28,857             0

80       65,756    17,754               0            48,003         16,512           31,490             0

81       67,729    18,109               0            49,620         15,181           34,440             0

82       69,761    18,471               0            51,290         13,535           37,755             0

83       71,854    18,841               0            53,013         11,516           41,497             0

84       74,009    19,217               0            54,792           9,056            45,736            0

85       76,230     19,602              0            56,628           9,025            50,603            0

86       78,517     19,994              0            58,523           6,025            31,499           0

87       80,872     20,394              0            60,479               0                     0          (24,620)

88       83,298     20,802              0            62,497               0                     0          (60,479)

89       85,797     21,218              0            64,580               0                     0          (62,497)

Scenario 2 (with reverse mortgage) Has Objective met?

Based on the analysis of your retirement income needs, expected income sources and available assets, your retirement income objective will be completely satisfied.

Age     Total      Social        Additional    Needed        Required        Asset    (Shortage)        

             Needs   Security    Income       fm Assets    Distributions   WD      Unmet Needs

61     $47,100       $0          $47,100           $0                       $0                 $0          $0

62       42,738         0             12,431       $30,307                  0         $30,307            0

63       41,456         0             12,679        28,776                  0            28,776            0

64       42,502         0             12,933        29,569                  0            29,569            0

65       43,572         0             13,191        30,381                  0            30,381            0

66       44,665         0             13,455        31,210                  0            31,210            0

67       45,784         0             13,724        32,059                  0            32,059            0

68       46,927         0             13,999        32,928                  0            32,928            0

69       48,096         0             14,279        33,817                  0            33,817            0

70       49,290    21,761               0           27,529         17,801             9,728             0

71       50,699    22,196               0           28,503         18,479           10,024             0

72       52,148    22,640               0           29,508         19,180           10,328             0

73       53,638    23,093               0           30,544         19,904           10,640             0

74       55,168    23,555               0           31,613         20,653           10,960             0

75       56,742    24,026               0           32,716         21,427           11,289             0

76       58,424    24,507               0           33,917         21,818           12,099             0

77       60,176    24,997               0           35,180         21,925           13,254             0

78       61,982    25,497               0           36,485         22,053           14,432             0

79       63,841    26,007               0           37,835         21,973           15,862             0

80       65,756    26,527               0           39,230         21,767           17,463             0

81       67,729    27,057               0           40,672         21,411           19,261             0

82       69,761    27,598               0           42,163         20,876           21,287             0

83       71,854    28,150               0           43,704         20,125           23,579             0

84       74,009    28,713               0           45,296         19,114           26,182             0

85       76,230    29,713               0           46,942         17,670           29,272             0

86       78,517    29,873               0           48,643         15,857           32,786             0

87       80,872    30,471               0           50,401         13,604           36,798             0

88       83,298    31,080               0           52,215         10,821           41,397             0

89       85,797    31,702               0           54,095           7,399           46,696    

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Frequently Asked Questions about HUD's Reverse Mortgages

Frequently Asked Questions about HUD's Reverse Mortgages

The Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program, which enables you to withdraw some of the equity in your home.  The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses, make home improvements and more.  You can receive additional free information about reverse mortgages in general by contacting the National Council on Aging at (800) 510-0301 or downloading their free booklet, "Use Your Home to Stay at Home," a guide for older homeowners who need help now. It is smart to know more about reverse mortgages, and decide if one is right for you!
1. What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you.  However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.  You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.
2. Can I qualify for FHA's HECM reverse mortgage?
To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan. You can find a HECM counselor online or by phoning (800) 569-4287.
3. Can I apply for a HECM even if I did not buy my present house with FHA mortgage insurance?
Yes.  You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage.
4. What types of homes are eligible?
To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.
5. What are the differences between a reverse mortgage and a home equity loan?
With a second mortgage, or a home equity line of credit, borrowers must have adequate   income to qualify for the loan, and they make monthly payments on the principal and interest.  A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments.  With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.
6. Will we have an estate that we can leave to heirs?
When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid.  All proceeds beyond the amount owed belong to your spouse or estate.  This means any remaining equity can be transferred to heirs.  No debt is passed along to the estate or heirs.
7. How much money can I get from my home?
The amount you may borrower will depend on:

• Age of the youngest borrower
• Current interest rate
• Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price; and
• Initial Mortgage Insurance Premium--your choices are HECM Standard or HECM SAVER

In addition, the more valuable your home is, the older you are, and the lower the interest rate, the more you can borrow.  If there is more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow.  For an estimate of HECM cash benefits, select the online calculator from the HECM Home Page. Many online reverse mortgage calculators can provide you with an estimate of the amount of funds you can borrow.
8. Should I use an estate planning service to find a reverse mortgage lender?
FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA-approved lender.  You can locate a FHA-approved lender by searching online at www.hud.gov or by contacting a HECM counselor for a listing.   Services rendered by HECM counselors are free or at a low cost.  To locate a HECM counselor Search online or call (800) 569-4287 toll-free, for the name and location of a HUD-approved housing counseling agency near you
9. How do I receive my payments?
You can select from five payment plans:

• Tenure- equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
• Term- equal monthly payments for a fixed period of months selected.
• Line of Credit- unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
• Modified Tenure- combination of line of credit and scheduled monthly payments for as long as you remain in the home.
• Modified Term- combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

 10. What if I change my mind and no longer want the loan after I go to closing?  How do I do this?

By law, you have three calendar days to change your mind and cancel the loan.  This is called a three day right of rescission.  The process of canceling the loan should be explained at loan closing.  Be sure to ask the lender for instructions on this process.  Mortgage lenders differ in the process of canceling a loan.  You should ask for the names of the appropriate people, phone numbers, fax numbers, addresses, or written instructions on whatever process the company has in place.  In most cases, the right of rescission will not be applicable to HECM for purchase transactions.