Alternatives to taking a Reverse Mortgage – You do have other options

Let’s get real for a moment. A reverse mortgage is the perfect solution to your cash flow or capital project needs if you:

1. Don’t have a shred of income to your name.
   • No SSI, no pension, no dividends or interest, no 401k distribution
2. Your credit is imploded.
   • You’re past due on your mortgage, you owe back taxes, your FICO looks like a score sheet from Rummy 500, you’re involved in a lawsuit, etc.

If either of those describes your current situation – you can skip the rest of this article and proceed directly to a national provider like  https://mutualreverse.com/ to learn more about applying for a Reverse Mortgage.

Alternatively, if you have some stream of income and your credit is still intact, we can now take a look at comparing a reverse mortgage against a forward mortgage. While these two product types are not a perfect overlay of each other, one can function as the other if you’re willing to make some concessions on the absolutes of each program.

Let’s provide some incentive for you to learn more about alternatives to a reverse mortgage. There are several categories you’ll wish to compare.

Interest rate.

Why would you care about the interest rate on a mortgage you never intend to pay back?

The interest rate on a reverse mortgage will determine the speed you will chew through the remaining equity in your house. It will also determine how much equity you can access upfront.

Let’s assume you have a purpose for the scrap value of your home at the end of your journey (the value of your home to be sold at a foreclosure auction after you die).

That purpose could be to leave money to your family or to your estate. 

A lower interest rate would equate to more money being left to them rather than being siphoned out of your household in the form of an interest rate leak.

No family? No estate? Then wouldn’t the local animal shelter be a better recipient for your remaining homes’ equity than a faceless corporate mortgage-backed-security bondholder?

Fees and Costs.

For every major purchase or transaction in your life, you’ve always scrutinized fees and costs. You’ve acted prudently. You’ve exercised delayed gratification. You’ve waited for a sale, or accumulated the cash to buy an item and minimized both the amount needed for financing and the costs associated with financing; formerly known as mortgage Closing Costs, now commonly referred to as Loan Costs.

Now pondering a reverse mortgage you’re on the cusp of eviscerating 10’s of thousands of dollars in fees and costs – purely because you are being temped with the premise of not having to pay it back. Is that prudent? Not even a little bit.

Fixed vs Adjustable Rate.

Assuming you’ve had mortgages in the past – you’re well aware of the two different product classes: fixed rate mortgages and Adjustable Rate Mortgage (ARM).

If you prefer the prior comfort and predictability of a Fixed Rate Mortgage – some Adjustable Rate reverse mortgages may have you feeling uneasy about your golden years. Yes, the calculations of the ARM mortgage are behind a curtain and you won’t ever really have to personally deal with the repercussions of a bad financial choice – but your family, estate, or the local cat shelter could be short-changed.

Or it was subject to anxiety-inducing run-away tendencies every time the bespectacled silver-haired Federal Reserve Chairman approaches the podium?

Private Mortgage Insurance – PMI

Now here’s the kicker. Remember PMI from your early years of homeownership? The pesky monthly insurance fee that seemed to stick around for way longer than you wanted it to? Well, it’s back. And you’re going to pay for it again until you die (or move into a nursing home, sell the house, or pay off the reverse mortgage). 

Didn’t you work hard enough to escape the need for PMI? Well on a reverse mortgage, it’s a package deal. 

Now enter the Forward Mortgage.

A forward mortgage is a traditional mortgage, we apply its features in a different format for your use as an equity extraction tool. Note: it’s not an Equity Sharing mortgage. Those we don’t approve of – Full Stop. If you’re shopping in that arena – it may be worth a call with us to chat through the options there.

But let’s assume this conversation is simply learning all you can before diving into a Reverse Mortgage.

Our forward mortgage is certainly not a one-size-fits-all all solution that will take you to the finish line.

Our forward mortgage will typically be set up with the guidance of your financial advisor. Your financial advisor will know more about your financial picture than we could or will ever know. 

The premise is this….

We identify your needs which could be a lump sum or an annuity-type monthly payment to live on.

[If we were talking about a Reverse Mortgage these needs would be equated to a Single Purpose Reverse mortgage or Home Equity Conversion Mortgage (HECM)]

For the forward mortgage, we would design a 30-year fixed-rate mortgage to fit your needs and establish a timeline that isn’t “forever”. 

In the case of an actual GoldCoast client, Mr. H., it was a Lump Sum scenario with a partial annuity-type monthly distribution. We worked successfully with Mr. H., a 92-year-old homeowner who approached us for guidance on extracting equity from his home. His daughter had gone through a divorce and was coming to live with him. She also had 3 children and one grandchild.

The existing house was very nice, a well-cared-for ranch in Hamilton but it had only 3 bedrooms. This multigenerational family needed at least 5 bedrooms which could only be accomplished by adding a 2^nd floor. 

With a wink and a nod, we put in place a 30-year fixed-rate mortgage for Mr. H. 

The wink was that Mr. H. wasn’t expecting to live to be 122 and the nod was that the daughter and her family didn’t want the home to be sold upon his death to settle the reverse mortgage debt.

The proceeds for the mortgage financing went into two piles.

Cash Pile 1

Mr. H. was in contact with a modular addition builder who was able to provide a fixed cost to rip the roof of his ranch and drop on a 2^nd floor. His ranch would become a colonial all the while allowing Mr. H. to stay in his residence while the addition was being tied-in to the home with electrical and plumbing.

On paper, we allocated Pile 1 for the construction costs.

Cash Pile 2

Mr. H. and his daughter had ironed out a legacy “passing of the baton” timeline. They agreed on 5 years. This would allow her time to get her family in place and provide some financial runway to get re-established. Pile 2 contained 60 payments on the new mortgage. Mr. H would then be 97. If Mr. H. was still alive, he would agree to sell his home to his daughter at the mortgage balance utilizing a Gift of Equity. [If you are interested in learning more about the concept of buying a home from a family member please refer to our article How Do I Buy My Parents House?] 

What do we know factually about the upcoming “baton passing” in this forward mortgage alternative vs if Mr. H. had followed through on his original intent of obtaining a HECM, the more recognizable Reverse mortgage financing?

1. Mr. H. will owe LESS, not more, on his mortgage balance.

Where a Reverse Mortgage balance would increase for every day it is outstanding – the Forward Mortgage balance decreases. Each payment made contains an element of principal buydown. 

In fact, we can slide our finger down a printed amortization schedule to a specific day and read across the line to an exact payoff amount due at that day and time.

In a Reverse mortgage environment calculating a future payoff is impossible. We’d need to know the future rate of the one-year Constant Maturity Treasury (CMT). You’d combine that future rate with the margin (set by your lender) to calculate the interest accrual rate. After applying the caps and the volatility of that rate you’d have a payoff + accrued interest that could choke a wild boar. It is conceivable that the mortgage payoff balance could be double where it began and that your offspring may not be able to afford to buy your house from you.

2. Cash Pile 1 and Cash Pile 2 both remain in the possession of Mr. H until they are spent.

If Mr. H speeds up the Baton Passing or slows it down, he has tools at his disposal to assist with this. Mr. H. could place his proceeds in a Money Market account to partially defer the interest expense on Pile 2. Mr. H. could speak with his Wealth Advisor about options which could include purchasing an Annuity Contract or other investments to better suit his timeline.

3. The un-spent Cash Piles will remain larger for longer under a forward mortgage than for a Reverse. The initial “draw” on a reverse mortgage is to cover the funding for the administrative fees or Loan Costs. The Costs on a Reverse mortgage may exceed $20,000 whereas Loan Costs on a traditional mortgage through GoldCoast should be less than $3,000, in some cases an 800% walloping in Reverse-land. 

Summary of Alternatives to a Reverse Mortgage

In many cases, a Reverse Mortgage is a perfect solution for financing and lifestyle if there is no income and credit is flawed. In fact, in those cases, the reverse is the ONLY solution.

In situations with some income and acceptable credit then it is advisable to look at the alternative to a Reverse mortgage which is to design a custom financing plan in conjunction with a wealth manager or advisor. 

Think that a reverse mortgage will keep you out of foreclosure? You may be surprised to learn that one out of every 10 Reverse Mortgages written is currently in default, and a default is the primary step in the foreclosure process.

Foreclosure can technically be triggered by neglecting maintenance, not keeping up with insurance or taxes, or a prolonged stay in the hospital or rehab.

While neither option, Reverse or Forward, is going to be the perfect option, one option will be more appealing than the other – depending on the goals and needs of the client and their families. 

We’d be honored to assist you with all the considerations. 

Here is a Glossary of some of the terms used in the reverse mortgage world:

Adjustable-Rate Mortgage: A mortgage loan with an interest rate that varies or adjusts periodically throughout the life of the loan based on fluctuations in a specific index, such as the Constant Maturity Treasury (CMT) Index.

Age-in-Place: The ability to live in one’s own home and community safely, independently, and comfortably, regardless of age, income, or ability level. If homeowners use a reverse mortgage loan to achieve this goal, they remain responsible for maintaining the home, paying property taxes and homeowners insurance, and complying with the terms of the loan.

Appraisal: A report that states an opinion of value on the home you are seeking to finance by averaging the selling prices of similar properties in the area and adjusting for attributes such as square footage and bedroom count and amenities including garage spaces, deck, fireplace, and basement rec rooms.

Closed End Line of Credit: A line of credit that you can make prepayments on, but those funds would not be available for a further draft.

Constant Maturity Treasury (CMT) Index: The CMT is an estimate of the one-year yield of the most recently sold treasury securities, such as bonds. To this index, the lender typically adds a margin (number of percentage points) to set the interest rate on an adjustable-rate mortgage after the initial rate period ends.

Consumer Financial Protection Bureau (CFPB): The Consumer Financial Protection Bureau is an agency of the United States government responsible for consumer protection in the financial sector.

Counseling: A service provided by an independent third party, typically approved by the U.S. Department of Housing and Urban Development, to make sure the borrower fully understands the reverse mortgage and reviews alternative options, prior to application. The federal government mandates that all HECM reverse mortgage loan candidates meet with an impartial, HUD-approved counselor before submitting a reverse mortgage application. This is to ensure that all borrowers have the information they need to make the right decision before moving ahead with the loan. This is an important consumer safeguard.

Default: Default is a failure to fulfill an obligation. Although a reverse mortgage does not require monthly mortgage payments, it does require that the borrower maintain the home, pay property taxes and homeowners insurance, continue to occupy the home as their primary residence, and otherwise comply with loan terms. Failure to do so is a violation or default of contract terms. If steps aren’t taken to remedy the default, the lender may start foreclosure proceedings.

Equity Sharing: A feature offered in proprietary mortgages that allows a borrower to receive more funds, or pay a lower interest rate, in exchange for giving up a percentage of the home’s future value. Not offered in any reverse mortgage programs. Not recommended by GoldCoast Mortgage in any way.

Expected Interest Rate (EIR): The Expected Interest Rate is what the lender estimates the average rate will be over the life of the reverse mortgage. The EIR is used to determine how much money a reverse mortgage borrower may qualify for based on the value of the home and the age of the youngest borrower. The EIR does not determine the amount of interest that accrues on the loan balance. The initial interest rate performs that function (see IIR).

Federal Housing Administration: The Federal Housing Administration (FHA) provides mortgage insurance on loans made by FHA-approved lenders. Thus, as an FHA-approved lender, AAG can make FHA-approved reverse mortgage loans.

Financial Assessment: A lender conducts financial assessments of each reverse mortgage applicant’s income, debt, and credit history to evaluate whether a person has enough money to pay ongoing costs, such as property taxes and homeowners insurance, over the life of the reverse mortgage loan. If the borrower’s resources or credit history don’t meet the lender’s guidelines, the lender may require as a condition of the loan that a cash amount be set aside (Life Expectancy Set-Aside or LESA) to pay for these ongoing obligations.

HECM: HECM stands for Home Equity Conversion Mortgage, which is a type of reverse mortgage insured by the Federal Housing Administration (FHA). Borrowers, 62 or older, could use a HECM to convert some of their home equity into cash. The actual cash amount received is based on several factors, such as the age of the borrower, the appraised value of the borrower’s home (not to exceed HECM lending limits), the equity in the home (home value minus what is owed on the home), and the current interest rate. Interest accrues on the money that is advanced, but loan repayment (principal, interest, and mortgage insurance) is not required until the borrower sells, moves out of the home for longer than a year, passes away, or fails to comply with the loan terms. The borrower is obligated to maintain the home and pay property taxes and homeowners insurance throughout the life of the loan.

HECM for Purchase: Whereas a majority of borrowers use a Home Equity Conversion Mortgage or HECM to convert some of their home equity into cash that they don’t have to pay back until they leave the home, borrowers can also use an HECM to buy a new home. In this HECM for Purchase option, the reverse mortgage lender would base its loan amount on the age of the youngest borrower or eligible non-borrowing spouse, the current interest rate, and the value of the home for purchase. The additional money needed to complete the purchase (the sale price of the new home minus the lender’s loan amount) would typically come from the borrower’s previous home sale or other assets such as savings and investments.

Home Equity: Home equity is the current market value of your home, minus what you owe. If, for example, the property is worth $500,000, and the loan is $300,000, then you have $200,000 (40%) of equity remaining in your home.

HUD: The Department of Housing and Urban Development (HUD) is the nation’s agency committed to creating opportunities for quality and affordable homes for all. It’s also the primary agency involved in rulemaking and oversight for HECMs.

Initial Principal Limit: Amount of funds you are eligible to receive from a reverse mortgage before closing costs are deducted.

Initial Interest Rate (IIR): The initial interest rate is the actual note rate on a HECM reverse mortgage. Interest accrues on the loan balance (assuming the borrower doesn’t make payments) at an annual rate equal to the IIR. The IIR on the variable-rate HECM can change over time based on the underlying index, up to the lifetime interest rate cap. The fixed-rate HECM has an IIR that never changes for the life of the loan.

Interest: Interest is what you are charged to borrow money from a lender. This amount is usually expressed as a percentage. Unlike the principal and interest on a traditional mortgage, the borrower partly pays down monthly, the principal and interest on a reverse mortgage typically do not have to be repaid until the borrower leaves the home (or fails to comply with loan terms), which could be years or even decades later. This is, of course, provided the borrower fulfills their part of the loan terms, which includes paying property taxes, homeowners insurance, and maintaining the home. On a reverse mortgage, you can choose a fixed-rate loan, meaning the rate of interest will never change over the life of your loan, or you can choose an adjustable-rate loan, meaning the rate can vary over the life of the loan. The current interest rate environment will likely be an important factor in the choice you make. A lower rate, of course, will lead to less interest accrued over the loan’s life, and will thus directly affect how much equity could be left at the end of the loan. If you elect to go with a fixed interest rate, you must select a lump-sum payment, whereas if you choose an adjustable interest rate, you have the option of receiving payouts as a lump sum, line of credit, monthly payments, or a combination of all three.

Interest Rate Cap: This is a ceiling that an adjustable interest rate cannot exceed, regardless of how high-interest rates were to rise.

Interest Rates

• Expected Interest Rate: The interest rate used to calculate the principal limit. It equals the 10-year Constant Maturity Treasury rate (CMT) plus a margin.
• Actual Interest Rate: The interest rate first charged on the loan beginning at closing; it equals one of the HUD-approved interest rate indices (1-month CMT or 1-year CMT) plus a margin. Also called the Initial Interest Rate.
• Interest Rate Structure
  1. Index: Reverse mortgage interest rates are tied to one index, the Constant Maturity Treasury rate (CMT).
  2. Margin: An amount added to the Index (CMT) to determine both the Expected and Actual interest rates. The margin is determined by the loan investor.
• Variable Rate: An interest rate that adjusts monthly or annually.
• Fixed Rate: An interest rate that remains constant over the life of the loan.

LESA: This is an acronym for Life Expectancy Set-Aside, which the reverse mortgage lender may require if it determines during the Financial Assessment that the prospective borrower does not have the income, assets, or credit history to pay their ongoing property taxes and homeowners insurance. Although the money set aside, based on the borrower’s life expectancy, will reduce the borrower’s payout, the borrower’s yearly property taxes and homeowners insurance are thereafter taken care of, making planning and budgeting easier. In the event the borrower outlives the money in the LESA, the borrower would take over the payment of their property taxes and homeowners insurance.

Line of Credit: This is the most popular reverse mortgage payout option, likely because it is also the most flexible. When you have a reverse mortgage line of credit, you can draw upon it as you need it, up to your principal limit. There are no minimum or maximum amounts that your lender requires you to take to keep the line open. And unlike a traditional home equity line of credit, your reverse line of credit cannot be revoked, even if your home’s value decreases or your financial situation worsens. Of course, you have to continue to maintain your property, keep paying your property taxes and homeowners insurance, occupy the home as your primary residence, and otherwise comply with loan terms. You are charged interest only on the portion of the line you use. So, you could simply keep your line open for 10, 20, or 30 years, saving it for a rainy day, and never be charged a penny of interest. Furthermore, your unused line continues to grow year after year.

Line of Credit Growth Feature: In some cases, the available line of credit increases over time according to the terms of the loan agreement.

Loan Origination Fees: These are fees that cover the lender’s operating costs and expenses. Lenders charge the greater of $2,500 or 2% of the first $200,000 of your home’s value to process your HECM loan, plus 1% of the amount over $200,000. The FHA caps HECM origination fees at $6,000.

Loan Closing Date: The date on which your reverse mortgage is scheduled to close.

Lump Sum: This reverse mortgage payout plan can be selected as a fixed-rate loan or an adjustable-rate loan. Both options offer a first-year maximum draw of 60% of the principal limit, with an additional 10% of the limit made available if maximum obligations exceed the 60% limit. If the fixed-rate option is selected, you retain the other 40% as home equity. In other words, a lump-sum, fixed-rate reverse mortgage payout is a one-time draw. With the adjustable-rate option, your remaining 40% will automatically be set up as a line of credit (unless you state otherwise), which can be accessed in the second year of your loan.

Margin: This is the interest percentage that is added to the index by the lender. The margin rate is permanent, meaning that after loan origination, the margin stays the same throughout the loan term, regardless of what the index may change to.

Maturity Event: A reverse mortgage becomes due and payable when a maturity event occurs. A maturity event occurs when a borrower:

• Sells the home
• Conveys title of the property to someone else
• Passes away
• Resides outside of the principal residence for more than 12 consecutive months
• Fails to maintain the home, or
• Fails to maintain the mandatory obligations of the loan (such as failing to pay property taxes or insurance premiums) and all options to bring the loan current have been exhausted or
• Failed to comply with loan terms not listed above.

Maximum Claim Amount: The lesser of a home’s appraised value or the maximum loan limit that can be insured by FHA. Used in determining the principal limit. It is used in determining the principal limit when applying for a HECM loan.

MIP (Mortgage Insurance Premium): Under the HECM program, a fee is charged to borrowers that is equal to a small percentage of the maximum claim amount, plus an annual premium thereafter on the loan balance. The MIP guarantees that if the lender goes out of business, FHA will step in and ensure the borrower has continued access to his or her loan funds. The MIP further guarantees that when the property is sold to pay back the reverse mortgage, the borrower will never owe more than the value of the home.

Miscellaneous Costs: Catchall term comprising such upfront borrower costs as counseling, appraisal, mortgage insurance premium, loan origination fee, and other lender service fees and services. Also referred to as settlement costs.

Modified Tenure: With modified tenure, the borrower can combine two payment methods: a tenure plan with a line of credit. The “tenure” portion makes it possible for the borrower to receive monthly payments for life for as long as the borrower lives in the home as their primary residence and complies with all loan terms, which include maintaining the home and paying all property taxes and homeowners insurance. The line of credit portion allows the borrower to draw upon it as needed. By combining the two options, the borrower is able to address both short- and long-term cash flow needs.

Modified Term: The borrower may combine a line of credit with monthly payments for a fixed period of months selected by the borrower. In exchange for reduced monthly payments, the borrower will set aside a specified amount of money for a line of credit that can be drawn on until the line of credit is exhausted.

Monthly Payments: This option allows borrowers to choose a fixed monthly payment for a specified amount of time (see Term payments). However, borrowers also have the option to receive fixed monthly payments for as long as they reside in the home and comply with the loan terms (see Tenure payments). The amount received each month will not change, even if the home decreases in value. A monthly payment option is only available at a variable interest rate.

Monthly Service Fees: A fee charged by the loan servicer for administering a loan after closing, such as disbursing loan funds, maintaining loan records, and sending statements.

Mortgage: A mortgage is a loan from a financial institution that the borrower is obligated to pay back. The collateral for the mortgage is the home itself. As such, a mortgage is considered a lien against the property until such time that it is repaid.

Mortgagee – The lender

Mortgage Insurance Premium (MIP): The mortgage insurance guarantees that you will receive expected loan advances. You can finance the mortgage insurance premium (MIP) as part of your loan. For more information, visit https://www.hud.gov/program_offices/housing/sfh/hecm/hecmabou.

Mortgagor: The borrower.

Net Principal Limit: Amount of funds you are eligible to receive at closing after loan costs have been deducted.

Non-Recourse Loan: A feature that limits the amount owed by the borrower, heirs, or estate when the loan becomes due and payable to the appraised home value. For the HECM program, non-recourse only applies when the home is sold. This is a loan, secured by a pledge of collateral, typically real property, for which the borrower or his heirs are not personally liable. A federally insured Home Equity Conversion Mortgage is a non-recourse loan, meaning the lender or the government can’t ask you or your heirs to make up the shortfall should the loan amount owed be greater than the value of the home.

Non-Borrowing Spouse: One of the requirements for obtaining a Home Equity Conversion Mortgage is the borrower must be 62 or older. However, in the case of a married couple, where only one spouse is 62 or older, they can still be eligible for a HECM by listing the underage spouse as a “non-borrowing spouse.” Although this option will reduce the couple’s payout — because reverse mortgage proceeds are based on the youngest spouse’s age — the eligible non-borrowing spouse receives important protections. Namely, if the older spouse dies, the eligible non-borrowing spouse may remain in the home, provided that the surviving spouse establishes within 90 days that they have a legal right to stay in the home and continue to comply with loan terms. The surviving spouse must also continue to pay property taxes, homeowners insurance, and maintain the home. The eligible non-borrowing surviving spouse, however, has no legal right to the remaining loan balance after the borrowing spouse passes. Payouts would cease.

No Prepayment Penalty: Borrowers can pay off their reverse mortgage anytime without penalty.

NRMLA: The National Reverse Mortgage Lenders Association (NRMLA) is the national voice of the reverse mortgage industry, serving as an educational resource, policy advocate, and public affairs center for lenders and related professionals. NRMLA was established in 1997 to enhance the professionalism of the reverse mortgage business.

Open End Line of Credit:

A line of credit that allows the borrower to withdraw funds, make payments back to the lender and then have the ability to make subsequent withdrawals.

Origination Fee: A fee charged by the lender to cover its expenses for originating the loan. A lender can charge the greater of $2,500 or 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000. Some lenders waive or reduce the origination fees on certain products.

Prepayment Penalty: Paying off a reverse mortgage early (that is before the borrower permanently vacates the property). Under the HECM program, there is no penalty for paying all, or a portion, of the loan prematurely.

Principal Limit: The total loan proceeds available at closing (the net loan proceeds and amounts needed to pay closing costs).

Principal Limit Lock: A feature that allows borrowers to lock in the principal limit for a specific period of time.

Proprietary Reverse Mortgage Loan: This option is for senior homeowners with high-value properties who wish to access more equity than the HECM federally-set borrowing limit allows.

Recordation Tax: A special assessment for recording a mortgage lien. The tax is typically paid at closing by the borrower.

Reverse Mortgage Calculator: By inputting such variables as age, home value, and mortgage balance into a reverse mortgage calculator, potential borrowers can estimate how much money they might receive from a reverse mortgage.

Refinance: This option is designed for senior homeowners with a current reverse mortgage loan. Popular reasons for refinancing include taking advantage of a lower interest rate, adding a spouse to the mortgage, or accessing more cash when the equity in the home rises due to an increase in the home’s value.

Right of Rescission: A borrower’s right to cancel a reverse mortgage loan within three business days of closing. The right of rescission does not apply to HECM for Purchase loans.

Servicing Set Aside: Amount of funds estimated at closing that will be needed to service the reverse mortgage over the projected life of the loan. These funds are deducted from the initial principal limit and automatically paid each month to the loan servicer.

Subordinated Debt: A lien placed on the home behind the reverse mortgage.

Sequence of Returns Risk: A retiree’s retirement account may be negatively impacted if they begin taking withdrawals in down market years early in retirement. While the average return or percentage earned on investments is important to portfolio performance, when those returns occur — the sequence in which they occur — can be just as important. For example, a retiree making regular withdrawals who experiences good, then poor, market years early in retirement will have more money left in their portfolio than a retiree making regular withdrawals who experience poor, then good, market years. To offset the sequence of returns risk, some investors in down markets choose to make withdrawals from other accounts or sources of income, such as tax-free reverse mortgage loan proceeds or a guaranteed annuity, that are not subject to stock market swings. As always, please consult with your financial advisor for additional guidance.

Settlement Costs: These costs typically refer to closing costs from third parties, which can include an appraisal, title search, insurance, surveys, inspections, recording fees, mortgage taxes, credit checks, and other miscellaneous fees.

Tenure Payment Option: Fixed monthly loan advances for as long as a borrower lives in a home.

Tenure Plan- In this payment plan, you receive equal monthly payments for life as long as at least one borrower lives in the home as a principal residence and all loan terms continue to be met, which include maintaining the home and paying all property taxes and homeowners insurance, and comply with all other loan terms.

Term Plan-In this payout plan, you choose to receive equal monthly payments over a finite period, such as 10 or 20 years. Although your payments will stop at some point, you can continue living in the home as your principal residence until a maturity event occurs, such as selling, moving out, passing away, or otherwise failing to live up to your loan terms, such as paying your property taxes, homeowners insurance, and maintaining the home.

Term Payment Option: Fixed monthly loan advances or payments for a specified period of time.

Third-party charges: Third parties charge their own fees for closing costs, such as the appraisal, title search, inspections, recording fees, and the like. These are not lender charges, but fees charged by a third party.

Title Insurance: A type of insurance policy that protects a homeowner or lender against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. The cost for the policy is typically paid at closing by the borrower.

Total Annual Loan Cost (TALC) Rate: The Total Annual Loan Cost or TALC is an estimate, expressed as a percentage, of what a reverse mortgage borrower can expect to pay each year over the life of the loan. It is a projection based on various charges associated with reverse mortgages, which include principal, interest, mortgage insurance premiums, and closing and servicing costs. The TALC is similar to the Annual Percentage Rate (APR) disclosure required on standard mortgages.