As a reverse mortgage loan clerk, I see many heartbreaking stories every day. The sad truth is that most of us didn’t plan our retirement properly. I’m 64 myself and fall into that category. Most of my friends are already retired and have a whopping 401,000 or pensions to draw from. Almost all of them worked for big companies.
I went a different way. I’ve been self-employed for most of my life. It gave me a lot of freedom and the ability to control my own destiny. I was reasonably successful, making a living from a comfortable lifestyle, buying flashy cars and clothes, and taking expensive vacations. I have no money set aside for my retirement and need to retire to the fixed income provided by the Social Security Administration. If I’d paid off my house, I’d be in much better shape and could almost get by on the $1,850 that Social Security would pay me if I retired now. If I wait until I’m 66 years and 6 months old that increases to $2200 and if I keep working until I’m 70 I’m getting a whopping $2600 a month. The only problem is that I haven’t paid off my house.
At this point I would be much better off in a reverse mortgage. A reverse mortgage would eliminate my house payments for the rest of my life and allow me to stay in my home forever. You can never call in the loan unless I die, move out of the house, or sell the house.
I would be responsible for the taxes and insurance, which comes out to about $300 a month. I would also have to pay my Home Owner Association dues, which are currently around $325 per month. So on my $1850 a month from SSA I would have to live on $1200 a month. It’s doable, but not very comfortable. Not what I worked for 40 years
A reverse mortgage also gives me a line of credit that I can use at any time. When I’m not tapping it, it grows about 3% per month. It doesn’t sound like much, but consider that it’s more than the interest I would get at a bank. Once my value is determined, they can never reduce the amount of my line or loan or call in the loan, even if my house goes down in value.
If you had a HELOC, a home equity line of credit, the amount of the HELOC can and has been reduced due to prevailing home values in the past. This happened to almost everyone in 2008 when the subprime bubble burst. People found that the money wasn’t available to them when they needed it most. This led to many people filing for bankruptcy because they could no longer pay their bills after being laid off.
The reverse mortgage prevents this from ever happening. They include an insurance policy called mortgage insurance with the loan, which protects the bank if values go down again. It also protects the borrower from negative repercussions if their bank goes 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 uncommon for me to find seniors trying to get by on less than $2000 a month but have several hundred thousand dollars in their homes just sitting there.
If you find yourself in this situation, consider a reverse mortgage. It helps you with your finances, gives you a little more money to spend every month and gives you the security of staying in your home for as long as you like.