Recently I got a call from and 85-year old client that needed my help.She didn’t have money to buy groceries. Wow, it’s not often that I’m called on in these types of situations, but I was glad to help her. But, how did she get into such a bad situation?
Her husband had passed away and throughout their life together he had taken care of all the bills and finances. Innocently she didn’t realize all the bills and taxes she had to pay and unfortunately the tax bill went unpaid. Because she failed to pay her taxes, the government seized her savings account to pay off her tax bill and then she was diagnosed with cancer. Talk about going through a rough patch!
Whatever funds she had left she used for living expenses but with her bank account dwindling, she was in dire straits. The one asset she did have was her home. And that’s where I came in. Fortunately she called me and I helped her get a reverse mortgage, resulting in an immediate infusion of cash for her by accessing the equity in her home. Since then I’ve been able to help her create a budget and even start a savings account for emergencies. If she sticks to her budget, she’s now got enough to live out her life comfortably.
Another client of mine is a retiree whose savings and job were heavily affected by the Great Recession of 2008. He lost a good chunk of the savings he needed to live on in retirement. He also got laid off by his company when economy turned. He found himself stuck between a rock and a hard place. He had depleted savings and struggled to find comparable work because of his age; yet he wasn’t old enough and didn’t have enough saved to retire yet. So, between his age, lack of income, and lots of bills he decided to declare bankruptcy.
I wish he had come to see me sooner, but even though he was in bankruptcy and in the middle of the foreclosure process we were able to get a reverse mortgage for him and eliminate his mortgage payment. This freed up cash for him and allowed him to keep his house and pay off his debts. I was able to work with his bankruptcy attorney to add to his bankruptcy agreement that we could eliminate his mortgage payment, stop the foreclosure, and pay off his debt clearing up the entire predicament he had found himself in.
In both of these situations, getting a reverse mortgage changed my clients’ lives for the better and helped them through some really dire financial situations. But what I’d love to see is that you come see about a reverse mortgage before you’re in a dire situation.
Like a recent couple I worked with that are in their 70’s and ready to retire. They’ve done it right, saved their money, have a good income, and have a solid retirement financial plan in place. Part of their plan was to get a reverse mortgage to enable them to take advantage of the equity they’ve built up so they can finally stop working and travel the world. They got a reverse mortgage so that they could leave their savings in place – and let it continue to grow – in case of a major medical or emergency expense or to eventually pass on to their heirs. They’re intentionally living off of their reverse mortgage proceeds; no mortgage payment and a line of credit that earns interest like a savings account!
Keep in mind that a reverse mortgage can be a great option to have in your back pocket. I’ve written about this before, but there are so many scary myths around reverse mortgages that are simply not true! You can read my article on some of those myths here. And here are a couple more facts to bust the myths I’ve run into recently:
You can get a reverse mortgage in the middle of a foreclosure to stop the foreclosure.
You can get a reverse mortgage even if you have late payments or bad credit history.
You can get a reverse mortgage even if you are in middle of bankruptcy to pay off or lower monthly output all while getting rid of your mortgage payment.
Also, a helpful feature is that with a reverse mortgage you can get rid of your mortgage payment and depending on the equity in your home and your age, you can get cash out and a line of credit after the first year. Even better, if your line of credit goes unused you actually earn interest on the unused portion.
One myth I hear over and over is that homeowners are afraid of their equity being eaten up and leaving nothing to their heirs. The best way to explain this is to show you the numbers. Currently, the average annual rate of home price appreciation here in California is 6.17% (according to the latest Case-Shiller Home Price Index). The average rate on a 30-year fixed rate mortgage is 4.83% (according to Freddic Mac). So, in this example, you are actually increasing your equity by 1.34% (the difference between 6.17% and 4.83%). (Please feel free to use the links above to check the most recent appreciation and average mortgage rates at the time you are considering your reverse mortgage.)
Bottom line, what’s my advice?
If you or a loved one are nearing retirement and you have a home with equity in it, consider a reverse mortgage as part of your retirement financial plan. Take the time to get all the facts specific to your situation. I’m happy to go over all the scenarios with you so you can decide if a reverse mortgage may help you feel greater financial peace to enjoy your retirement. Please don’t wait until you are in a dire situation, if you can.
I absolutely love working with my clients to answer all their questions, concerns, and find the best home financing solutions to fit their needs and goals. If I can be of help to you, please reach out!