John and Linda are like most pre-retirement couples, they wanted to see if a Reverse Mortgage fit into their retirement plans. John was 64 and Linda had just turned 62.
John had worked for the same company for almost 30 years and had managed to save about $100,000 in his 401(k). Linda had been a stay at home mom raising their three children. They’d lived in the same home for more than 20 years and wanted to “retire in place”.
When we met I asked about their retirement concerns and they were worried they would outlive their savings. Because they had a great deal of equity built up in their home we found a reverse mortgage program that would not only pay off their existing mortgage which would save them $1800 a month but also give them a line of credit for those “life events” that happen to all of us.
Before they decided they wanted their kids to be part of the decision making process, so at our next meeting I explained to the two kids present (a good idea) how the program would work and the “safety net” it would provide their parents in the event something unforeseen occurred. The kids saw the value and agreed it was the right thing to do. However the youngest son was 100% against the program and refused to participate in any of the consultations.
Not wanting to upset the family dynamic, John and Linda decided to pass on the Reverse Mortgage for the time being in the hope they could get their son “on board”
A few months later I reached out to them to see if things had changed. I found out the John had passed away. He’d had a massive heart attack and the medical expenses not covered by his health insurance had almost drained their savings.
Linda now had a home she couldn’t afford along with some unpaid medical bills.
It would be great if every story had a happy ending but while a Reverse Mortgage couldn’t have prevented John’s passing, Linda would have been in a position to keep her home.
A Reverse Mortgage because “the best laid plans”… aren’t always
The Scottish poet Robert Burns warned us that the “best laid plans…often go awry.” Even in the 18th century “life happened”.
Planning for retirement in a perfect world is easy but the economic turmoil of the last 30 years has wreaked havoc on many family’s best laid plans for retirement.
In the early 2000s Rose and her husband Herb were looking forward to a safe and secure retirement. Taking advantage of record property values and the availability of easy credit, they refinanced their home. The plan was to take that dream vacation for their 50th wedding anniversary, help their granddaughter through college and their grandson buy his first home. The remainder of the loan proceeds would be used to fund their retirement and make the mortgage payments.
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Fast forward to today
Rose, now 80 years old is on her own. Herb passed away a few years ago, leaving her with some some uncovered medical bills and only 50% of his pension. Most of the loan proceeds have been used up and she is faced with making an $1800/mo mortgage payment on just her social security and what’s left of Herb’s pension.
After receiving some information from us in the mail, Rose and her daughter dropped by our office. They had heard “bad things” about Reverse Mortgages and were skeptical we would be able to help them. But their desperation overcame their skepticism and agreed to a free consultation.
Rose was very clear that she wanted to stay in her family home (age in place in today’s lingo)
After an extensive interview, we came up with a solution that would not only relieve Rose of that $1800/mo burden but also provide her with a monthly income of $2000/mo and a line of credit in case “life happened” again.
Needless to say there were lots of hugs and a few tears when we finally closed escrow.
Mitch and Stephanie are meticulous retirement planners. They’ve already mapped out many of their post-retirement road trips. They just purchased a new truck that would tow their 5th wheel and accommodate Bijou their Maltese.
They’re also meticulous on the financial side of their retirement plan.They had heard many things (some good and some bad) about Reverse Mortgages and the role they could play in a complete retirement plan. Not wanting to leave any stones unturned they logged on to one of our free Reverse Mortgage webinars. While the webinar didn’t answer all their questions, it piqued their interest enough to come in to the office for a consultation.
Even though retirement was still 3-4 years away Mitch and Stephanie were concerned about juggling their mortgage payment, truck and 5th wheel payments. Their current incomes allow them to manage these handily but when they will be relying on Social Security, pensions and income from their IRAs they might have to scale back their travel plans. They considered taking lump sum distributions from their IRAs to pay off the truck and 5th wheel, but at their current income levels that would mean a 25-30% hit for state and federal income taxes.
With a Reverse Mortgage Mitch and Stephanie are no longer making a mortgage payment ($1900/mo savings) and we were able to get them enough cash at closing (tax free) to payoff the truck ($700/mo savings). Their plan is to apply the $2600/mo savings to their 5th wheel payment, which would have the 5th wheel almost paid for when retirement rolls around.
But the real “selling point” for them was the line of credit that is guaranteed to grow at 6% per year (4.5% interest rate plus 1.5%) regardless of the equity in their home. The money is also tax free, so depending on their tax bracket in retirement they will be saving another 15-20%.
A Reverse Mortgage is just one piece of a safe and secure retirement plan.For many families, like Mitch and Stephanie’s it can be a game changer.
When Frank and Lola bought their home in 1990 they knew it would be their last move. Situated in a quiet senior community it had all the amenities they wanted.
But like many seniors they overlooked the fact that as they age their so does their home and their cars. Which means the cost of maintaining them increases as well. According to the Bureau of Labor Statistics housing accounts for 33.9% of annual expenditures for those 65 and over. Transportation costs represent nearly 16% of expenditures for older Americans, while health care represents 13.4%
“We think about health, wealth and housing, but not mobility. Before we do anything, we have to get there first.”
Frank and Lola’s dream home is now 26 years old and needs some updating and repairs. In addition they have reached that “repair or replace” point with Frank’s car.
Because there was no mortgage on their home, they went to their local bank for an equity loan like they had done 20 years ago. Their plan was to do the work to their home and get Frank a new car and use the loan proceeds to cover any additional expenditures that might pop up.
Unfortunately for Frank and Lola according to the new more stringent lending guidelines, their social security and pensions weren’t enough to qualify them for the loan they needed.
When President Reagan created the Reverse Mortgage program in the late 1980s, he must have had Frank and Lola in mind. While there are many ways to use a Reverse Mortgage, paying off debt is the Number 1 solution for countless families.
Frank and Lola had the option of taking a lump sum distribution or getting a line of credit that they could access as needed. They opted for the line of credit, which gave them the flexibility they wanted to use only as needed.
Retirement today lasts much longer than it did for previous generations. Having a Reverse Mortgage to help make it through those years is more important than ever.
When Pam finally contacted us, she was almost at the end of her rope.
“I’m calling for my parents, they insist on staying in their home but they’re both struggling to get around and I’m afraid they’ll get hurt getting in and out of the shower”.
Her parents didn’t have the resources to make the necessary changes to ensure their current and future needs would be met. Pam and her husband had been helping out but it was becoming a financial burden for them.
People don’t want to take the time and have renovations done until they are already in a less than ideal situation. A popular use for reverse mortgages often includes home renovations or upgrades to help the homeowner stay in their home for the long haul.
Pam’s parents needed renovations to their home that would make it more “age friendly” so they could maneuver through the home without injuring themselves. They’d been pretty much restricted to the first floor of their home because climbing the stairs had become a real adventure.
The had investigated a traditional equity line of credit but neither could afford the additional monthly payment.
Helping families remain in their home as they age is one of the primary goals of the Reverse Mortgage program. Because many wouldn’t qualify under today’s more stringent guidelines, a Reverse Mortgage is the ideal solution for many families.
After they decided a Reverse Mortgage was the right solution for them, Pam and her parents met with a contractor who specialized in home improvements for the aging.
They decided on grab bars throughout the home, low-pile carpeting to avoid tripping, changing the bathroom shower and entry way to be curbless and have no-slip tile. The stairlift chair now allows them to access their master bedroom upstairs.
Because they chose the line of credit option for their Reverse Mortgage they were able to pay the contractor as the job progressed and they still have funds available if more renovations are needed in the future.
Home repairs and renovation rank second (behind paying off debt) when it comes to the uses of a Reverse Mortgage. Pam told me she sleeps much better knowing her parents home is not a danger to them any longer.