July 25, 2024


Delighting finance buffs

Will a Reverse Mortgage Work For You?

Will a Reverse Mortgage Work For You?

As a reverse mortgage loan officer, I see many heart-breaking stories every day. The sad truth is most of us have not planned properly for our retirement I am 64 myself and fall into this category. Most of my friends are already retired and have fat 401K’s or Pensions to fall back on. Nearly all of them worked for large companies.

I took a different path. I was self-employed for most of my life. It gave me a lot of freedoms and the ability to control my own destiny. I was mildly successful, being able to support myself in a comfortable lifestyle, buy flashy cars and clothes and take expensive vacations. I did not put money away for my retirement and will have to retire to the fixed income the Social Security Agency provides. Had I paid my home off, I would be in much better shape and could nearly get by on the $1850 Social Security would pay me if I retired now. If I wait until I and 66 year and 6 months that skyrockets up to $2200 and if I continue to work until I am 70, I’ll get a whopping $2600 per month. The only problem is I haven’t paid off my home.

At this point, I would be much better in a reverse mortgage. A reverse mortgage would eliminate my house payment for the rest of my life and allow me to stay in my home forever. They can never call the loan due unless I pass away, move out of the home or sell the home.

I would be responsible for the taxes and insurance which amounts to about $300 per month. I would also have to pay my Home Owner Association dues which are currently about $325 per month. So out of my $1850 per month from SSA, I would have to live on $1200 per month. Its doable but not very comfortable. Not what I have worked for 40 years to achieve

A reverse mortgage will also give me a line of credit which I can tap at any time. If I don’t tap it, it will grow at approximately 3% per month. It doesn’t sound like a lot but keep in mind its more than the interest I would get at a bank. Once my value is established, they can never cut the amount of my line or credit or call the loan due even if my home falls in value.

If you had a HELOC, a home equity line of credit, the amount of the HELOC can and has been cut in the past due to prevailing real estate values. This happened to nearly everyone in 2008 when the subprime bubble burst. People found that when they needed the money the most, it was not available to them. This caused a lot of people to declare bankruptcy because they were no longer able to pay their bills after being laid off on their jobs.

The Reverse mortgage prevents this from ever happening. They place an insurance policy in the loan called Mortgage insurance that protects the bank in the event the values plummet again. It also protects the borrower from adverse affects of their bank going out of business.

A reverse mortgage was designed for Seniors who were cash poor but had built up a lot of equity in their homes. Its not unusual for me to find Seniors trying to get by on less than $2000 per month but have several hundred thousand dollars in their homes that is just sitting there.

If you find yourself in this situation, look into a reverse mortgage. It will help you with your finances, provide a little more spendable money each month and give you the security of being able to stay in your home as long as you want.