I'm going to take a moment to explain why a Reverse Mortgage may not be a good idea for certain borrowers. For example borrowers with GOOD credit in an APPRECIATING market.

Now we are going to start with the breakdown of the Reverse Mortgage which consists of a couple different options, all are variable:

We will base this scenario on a $365,000 Value with a Zero balance:

Reverse Mortgage to 95% LTV

- The Monthly HECM leaves $205,699 to borrower, figure 6.500% rate w/ cap of 16.5%.
- The Annual HECM leaves $157,886 to borrower, figure 8.10% rate w/ cap of 13.1%.

Now let's look at the fees:

- Loan fees to lender: $7,256
- Closing Costs: $2,334
- PMI: $7,256
- Service Fee (paid monthly): $5,649

TOTAL FEES: $22,495

Rising Interest and PMI will eat up the remaining 5% equity.

Conventional Alternative, Cash Out to 80% LTV: COFI Index

1) $292,000 cash out to borrower at 80% LTV (leaving you with 20% equity).

2) FIR (Fully Indexed Rate) of 6.04%, Minimum rate of 2.4%, difference of 3.64% deferred interest.
- Minimum Monthly payment of $1,138.

3) Invest $100,000 in (I'll use NOIXX as an example) an equity fund or money market fund, this particular equity fund had a return of 5.82% last year.

4) You still have $192,000 in your checking account after investment.

5) Equity gains in the residence(Over 20% total remaining). If we use Arizona's appreciation rate conservatively at 7.2% per quarter, 28.8% annually (based off 2005 numbers), this will give you an additional $105,120 in the initial annual equity gains based on current trend. This alone will take care of ALL deferred interest and the minimum monthly payment.

Now I'll break this down:

1st year- $365,000 value x 28.8% = $105,120 in equity gains + $365,000 = New appreciated value of $470,120

2nd year- $470,120 value x (lets say the appreciation rate cools down) 22.4% = $105,306.88 in equity gains + $470,120 = New appreciated value of $575,426

3rd year- $575,426 value x (lets say the appreciation rate plummets to 4% annually, highly unlikely but for worst case scenario purposes) 4% = $23,170.04 in equity gains + $575,426 = New appreciated Value of $598,443.04.

4th year- $598,443.04 value x 4% = $23,937.72 in equity gains + $598,443.04 = New appreciated Value of $622,380.76.

5th year- $622,380.76 value x 4% = $24,895.23 in equity gains + $622,380.76 = New appreciated Value of $647,275.99 minus deferred interest over 5 years in the amount of $54,020 = $593,255.99 in true appreciated value.

MY ADVICE: SELL NOW (right before year 5)BEFORE RECAST.

Let's recap:

1) We have true equity gains over 5 years in the amount of $301,255.99.

2) We have $100,000 invested in (NOIXX example) with a five year total return of $139,988.

3) We have $9,645.48 in checking after mortgage has been paid and $2,000 per month for 5 years = $120,000

Minimum Mortgage Payments (listed annually):

Year1: $13,656
Year2: $14,680.20
Year3: $15,781.20
Year4: $16,964.76
Year5: $18,237.12

TOTAL: $62,354.53

Remaining left in checking after mortgage has been paid for 5 years: $129,645.48

Lets assume you spend an additional $120,000 over and above your mortgage payment and your entire current income for 5 years:

$120,000 + annual income over 5 yrs. (we'll use $40,000 annually for this example) in the amount of $200,000 = $320,000, which leaves you with $9,645.48.

Keep in mind you would have to be spending roughly $8,000 per month over a five year period.

Now let's break this down when all is said and done in 5 years:

Checking: $9,645.48
Investment: $139,988
Equity from sale: $301,255.99

TOTAL RETURN IN 5 YEARS ON CONVENTIONAL LOAN W/ INVESTMENT RETURN: $450,889.47

This program is geared for exactly what is shown. This is why Alan Greenspan has embraced this particular loan for his own financial gains.

I am not by any stretch saying that there is not a place for a Reverse Mortgage, but as I had mentioned in the beginning, if you have good/decent credit and live in an appreciating market, there are certainly much better alternatives.

Do you really think that 28.8% a year home appreciation is sustainable? Even 22.4%? In my market the rate on existing homes is around 4%.
Can you make the numbers work on that?

Read the initial post. As you will see I did not use a sustainable appreciation value. I will show you agin:

1st year- $365,000 value x 28.8% = $105,120 in equity gains + $365,000 = New appreciated value of $470,120

2nd year- $470,120 value x (lets say the appreciation rate COOLS DOWN) 22.4% = $105,306.88 in equity gains + $470,120 = New appreciated value of $575,426

3rd year- $575,426 value x (lets say the APPRECIATION RATE PLUMMETS to 4% annually, highly unlikely but for worst case scenario purposes) 4% = $23,170.04 in equity gains + $575,426 = New appreciated Value of $598,443.04.

4th year- $598,443.04 value x 4% = $23,937.72 in equity gains + $598,443.04 = New appreciated Value of $622,380.76.

5th year- $622,380.76 value x 4% = $24,895.23 in equity gains + $622,380.76 = New appreciated Value of $647,275.99 minus deferred interest over 5 years in the amount of $54,020 = $593,255.99 in true appreciated value.

Keep in mind I am NOT suggesting this in flat or low appreciating markets. This is geared for markets like Arizona, California, Florida, Oregon, Nevada, DC, Idaho, Wyoming, Washington, and Hawaii.