A Reverse Mortgage Story

I wanted to take a moment to tell you a story of a ‘reverse mortgage’ placement. Let’s take our story’s primary character, ‘Mary’, and look at a circumstance that seems to fit a reverse mortgage strategy very well. Mary is a single woman who just recently became eligible for Medicare so you figure her age out because my Dad always said it was not a good idea to talk about a woman’s age.   

Mary is single and has no immediate family and, through no fault of her own, not much in savings or retirement other than the home she owns. Fortunately she has owned the home in a Southern California beachside community for over 30 years so even though the real estate market has declined she is still in the black. Mary’s current mortgage is about $200,000.00 ($1,100 a month payment going out) and her home is valued at $650,000.00. The mortgage outstanding is an interest only (variable, not fixed) loan that was secured during the ‘no document loan’ days of past. Being ‘retired’, and having home prices depressed, Mary can no longer play the ‘re-finance’ piggy bank game that many enjoyed in the past to ‘finance current life, or lifestyle, needs’ so she is faced with tough decisions about staying or going.

Does Mary sell her home and employ that equity in another home in a more ‘cost appropriate’ region of the State or country? Does she sell and rent in the area she lives in currently where rents are steep and not likely to remain at a ‘fixed’ level for the rest of her life? Would choices made move her away from friends and ‘family removed’, from favorite haunts and hangouts, or from preferred doctors and other providers? Tough choices to make but they are choices that rational minds must confront. Better to make choices while you still have choices to make than to fail to act and have choices taken from you. 

The reverse mortgage option in, Mary’s case, would provide her with

• $1,122.00* of income for life, or,

• a lump sum payout of $189,000 for her to invest for income, or,

• $2,138.00 for 120 months when the payment would ‘reset’.

In the case of the home appreciating over time, remember it is beach area property, it may be possible to ‘reset’ the payout* to a higher amount at that later date. If she decides to sell the home in three years she can do so and she will have all the remaining equity in the home that wasn’t paid out to her through the reverse mortgage available to her just as you would when you sell a home, pay off a regular mortgage and walk away with the cash.  

So Mary has decided to do the reverse mortgage option of $1,122.00 a month, for life, payout to her. Her current mortgage will be paid off and if properties in the beachside community come back she may be able to ‘reset’ her payout at that later date*. The main point is that she has given herself options and time to stay in the home she loves and has maintained for all these years.

A wonderful booklet on the subject of Reverse Mortgages is put out by AARP. Take your time to read through the Reverse Mortgages booklet before you start the process of considering a reverse mortgage.  

To be eligible for a federally insured HECM (Home Equity Conversion Mortgage), you must discuss the loan with a counselor employed by a nonprofit or public agency approved by HUD (the U. S. Department of Housing and Urban Development). This counseling can be very helpful. So it can be a good idea even if you are thinking about applying for some other type of reverse mortgage. HECM counselors provide in-person counseling in their local areas, and counseling by telephone in other areas nationwide. For current information on requesting HECM counseling, go to www.hecmresources.org/network.cfm or call 1-800-209-8085. This counseling generally takes at least one hour. When provided by telephone, it typically requires two or more calls.

Give your ‘Enchanted Castle’ a ‘Disney’ ending by making choices while you still have choices to make rather than failing to act timely and having the ability to have choices taken from you.