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As a reverse mortgage loan officer, I see 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 in this category. Most of my friends are already retired and have a hefty 401K or pension to fall back on. Almost all of them worked for large companies.
I took a different route. I was self employed for most of my life. It gave me a lot of freedom and the ability to control my own destiny. I was moderately successful, being able to support myself in a comfortable lifestyle, buy flashy cars and clothes, and take expensive vacations. I didn’t put money away for my retirement and will have to retire on a fixed income provided by the Social Security agency. If I had paid off my house, I would be in a much better position and Social Security could pay me $1850 if I were to retire now. If I wait until age 66 and 6 months that adds up to $2200 and if I continue working until I’m 70, I’ll get $2600 per month. The only problem is that I haven’t made my house payment.
At this point, I’d be much better off with a reverse mortgage. A reverse mortgage will eliminate my home payments for the rest of my life and allow me to live in my home forever. They can never call the loan delinquent until I die, move out or sell the house.
I will be responsible for taxes and insurance which amount to about $300 a month. I also have to pay my Home Owner’s Association dues which are currently about $325 a month. So out of my $1850 a month from SSA, I have to live on $1200 a month. It’s doable but not very comfortable. 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 tap it, it will grow at about 3% per month. This may not sound like a lot, but keep in mind that it is much more than the interest you get at the 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 declines in value.
If you had a HELOC, home equity line of credit, the amount of the HELOC may have been reduced in the past due to prevailing real estate values and has been reduced. This happened to almost everyone in 2008 when the subprime bubble burst. People found that when they needed money the most, it was not available to them. This caused many people to declare bankruptcy because they were not able to pay their bills after being laid off.
A reverse mortgage prevents this from ever happening. They carry an insurance policy on the loan called mortgage insurance that protects the bank in case values fall again. It also protects the borrower from the adverse effects 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. It’s not unusual for me to have seniors trying to live on less than $2000 a month, but have millions of dollars in their homes just sitting there.
If you find yourself in this situation, look into reverse mortgages. This 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 for as long as you want.
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