As a reverse mortgage loan officer, I see so many heartbreaking stories every day. The sad truth is that most of us have not properly planned for our retirement. I myself am 64 and fall into this category. Most of my friends are already retired and have big 401Ks or Pensions to fall back on. Almost all of them worked for large companies.
I took a different path. I was self-employed for most of my life. It gave me many freedoms and the ability to control my own destiny. I was moderately successful, able to maintain a comfortable lifestyle, buy flashy cars and clothes, and take expensive vacations. I did not save money for my retirement and I will have to retire with the fixed income provided by the Social Security Fund. If I had paid off my house, I would be much better off and could almost survive on the $1,850 Social Security would pay me if I retired now. If I wait until I’m 66 years and 6 months, that shoots up to $2,200 and if I keep working until I’m 70, I’ll make a whopping $2,600 a month. The only problem is that I haven’t paid off my house.
At this point, you’d be much better off 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 house forever. They can never pay off the loan unless I pass away, move out of the house, or sell the house.
You would be responsible for taxes and insurance, which comes to about $300 per month. I would also have to pay off my Home Owners Association debt, which is currently about $325 a month. So of my $1,850 per month from SSA, I would have to live on $1,200 per month. It is possible but not very comfortable. It’s not what I’ve worked for 40 years to achieve
A reverse mortgage will also give me a line of credit that I can tap into at any time. If I don’t touch it, it will grow about 3% per month. It doesn’t sound like much, but keep in mind that it’s more than the interest you’d get at a bank. Once my value is established, they can never reduce the amount of my line or credit or pay off the loan even if the value of my home goes down.
If you had a HELOC, a home equity line of credit, the HELOC amount can and has been reduced in the past due to prevailing real estate values. This happened to almost everyone in 2008 when the subprime bubble burst. People discovered that when they needed the money the most, it was not available to them. This caused many people to file for bankruptcy because they could no longer pay their bills after being laid off from their jobs.
The reverse mortgage prevents this from happening. They put an insurance policy on the loan called Mortgage Insurance that protects the bank in case the values plummet again. It also protects the borrower from the adverse effects of the bankruptcy of his bank.
A reverse mortgage was designed for seniors who were short on cash but had built up a lot of equity in their homes. It’s not unusual for me to find seniors trying to get by on less than $2,000 a month, but have several hundred thousand dollars in their homes that are just sitting there.
If you find yourself in this situation, look into a reverse mortgage. It will help you with your finances, give you 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.