Reverse Mortgage as a Retirement Plan for Seniors

Gustan Cho Associates are mortgage brokers licensed in 48 states

This covers reverse mortgages as a retirement plan for seniors. Why reverse mortgages benefit senior homeowners on a fixed income:

  • What is a reverse mortgage
  • The high cost of homeownership for senior homeowners on a fixed income
  • Types of reverse mortgages
  • Keeping your home without financial stress after retirement and on a fixed income

Cost of Homeownership and Stress for Senior Homeowners on a Fixed Income

Rather you prolong your retirement or have a difficult time transitioning into retirement you need to start planning better. No one should live their retirement years under financial stress! In retirement, your expenses need to be less so your quality of life is more. A shelter is your biggest expense. We all need shelter for as long as we can breathe. Noble prize winner economist Robert Merton stated, we need to start thinking differently about our house. He went on to say, we need to stop looking at our home as a “legacy” and start seeing the true investment asset it is.

Home Part of Retirement Plan for Senior Homeowners

The home should be a part of your retirement plan. You’ve seen the celebrity infomercials, mailers, and heard rumors and frankly, the message is all wrong. A reverse mortgage is not simply about having no mortgage payments; if used properly, it can bring financial freedom. It is time to start really enjoying retirement! Your home needs to be a part of your retirement plan. Therefore, getting a Reverse Mortgage needed to be a part of your plan. A reverse mortgage is a versatile retirement planning tool. This is planning better for retirement. Your biggest expense is your home, it is one of the largest investments we have. Think of your retirement money in the form of accounts.

Home Mortgage is the Biggest Expense for Homeowners

For example, in retirement you withdraw from three accounts you are invested in; Pension, 401k/403b, and social security. Just for a moment, think of your home as an additional account to these three examples. I call this account your fourth pot of retirement money. For years you put your hard earned (after taxes) money into it and you paid the interest. You are invested in your shelter.

Cash Withdrawal Through Reverse Mortgage

what is the best way to make a withdrawal from this shelter savings account?

The bigger question is, what is the best way to make a withdrawal from this shelter savings account?
The answer is a Reverse Mortgage.

The Reverse Mortgage will create more liquid cash and there is no monthly mortgage payment. Plus, any proceeds from a reverse mortgage are tax-free.

Remember, you must pay the property taxes and homeowners insurance while keeping the property as your primary residence. It’s time for your home to start paying for itself and being utilized for the true asset it is. You can do just that with the right type of Reverse Mortgage.

Types of Reverse Mortgage Options

The Reverse Mortgage has many options; for example, equal monthly payouts, line of credit, a combo of monthly payments and line of credit, purchase a new home without the monthly mortgage payment, and so much more. I want you to experience success in your retirement so get all the facts.

Real Estate Advice for Baby Boomers

I would like to share a real estate advice column written to and responded to by Edith Lank, an award-winning real estate expert:

Dear Ms. Lank: I’m curious about reverse mortgages. What’s the good of them? I’ve heard they are scams. Can you explain? — M.V.
Answer: First off, don’t worry about the scam problem. When reverse mortgages first became available, some were extremely expensive. In addition, some older homeowners had their loans linked to inappropriate investments. All that’s been cleared away now.

A reverse mortgage is a true mortgage just as you understand one. You borrow against the value of your home, pledging the property as security. You remain the owner. The main difference is that you don’t make any repayments. Instead, you can receive monthly checks. In fact, the older you are the larger those monthly payments can be. Or you can choose to take a lump sum, perhaps to pay off an existing mortgage. The debt keeps growing, with unpaid interest added, as well as — for the most popular plan — Federal Housing Administration insurance premiums.

Being Able to Afford Home Without Selling It

They just have to show they can handle property taxes and homeowners insurance premiums.

Not all seniors need this type of plan, but a reverse mortgage can allow some people to remain in a home they might otherwise have to sell. It can even help with downsizing to a different home. As the borrowers won’t be making repayments, credit, and income doesn’t matter. They just have to show they can handle property taxes and homeowners insurance premiums.

reverse mortgage

No repayment is due until the homeowner moves away or dies. A surviving spouse, even one under the qualifying age of 62, can remain in the home and continue the plan if desired. Eventually, the homeowner’s heirs can choose to pay off the accumulated loan and keep the house or simply sell the property. If the debt has become so high the sale wouldn’t bring enough to pay it off, that FHA insurance will cover the shortfall.

So Where’s the Catch?

Less for your kids to inherit. Like many financial strategies, this one is just right for some people and totally wrong for others. Edith Lank does create a quick response and quick read but it leaves out the necessary information to make the right decision. The answer to “so where’s the catch?”, leaves the reader without all the information and options. The truth is, many economists, and financial advisors stated, there is no “catch”. We are conditioned to believe that anything giving us a better quality of life must have a “catch”. Ms. Lank stated the catch with a reverse mortgage will be the children inheriting less, referring to the home, and this does not have to be the case. She leaves out the necessary information for making an informed decision. For example, she does not reference the children having their own shelter and may not want your house or plan to sell the home upon your death.

Noble prize-winning economist Robert Merton said your home should not be looked at as your legacy but more like an annuity, this is your other retirement account. A Reverse Mortgage would allow you to keep your equity intact while giving you plenty of breathing room while you and your children decide what to do with your home when you pass on. She also does not give an example of how the Reverse Mortgage is used to give the children the money they would inherit from the home while they are still living. Imagine living to witness how your children spend their inheritance! You can with a Reverse Mortgage.

Does a Reverse Mortgage Fit your Situation?

Ms. Lank stated “…this one is just right for some people and totally wrong for others” and I agree with this comment. This is not a product for a person who is bleeding out in desperate need of financial surgery; for example, in foreclosure and active bankruptcy. In this scenario, they should have looked at Reverse Mortgage options before they started to financially hemorrhage. When the finances began to take a slight dive, they began to just “live” instead of “living comfortably”, or inflation/cost of living projections exceeded the budget they should have turned to a Reverse Mortgage. A Reverse Mortgage is a versatile product with many options that could suit your financial needs.

HECM graph

A Reverse Mortgage or HELOC would allow you and your spouse to stay and maintain your current home. For you to move out of the neighborhood means moving away from longtime neighbors, friends, church, doctor, etc. In a new location, these things would be different or too far to frequently visit. Know the truth and get educated on your options because Edith Lank responded to one (1) scenario without all the options to give a quick reply. A quick reply will not give you all the information you need but it can get you started.

Benefits of Reverse Mortgages

What are the Benefits of Reverse Mortgages

A Reverse Mortgage would allow you to purchase:

  • a new senior-friendly home
  • an upgraded home
  • a home in your dream location
  • or just down-size from your current home

as Ms. Lank stated. Most importantly, you are purchasing a home that will not have a mortgage payment so you and/or your spouse can reside there until both parties are deceased. To clarify, if your spouse on title succeeds you in death or vice versa then the surviving spouse continues to remain in the home mortgage payment free until they pass.

In my opinion, this was a very interesting letter to get the conversation started about Reverse Mortgage. We need to know our options based on our personal scenario and not a quick vague reply. Lately, more financial advisors, economists, attorneys, and real estate experts are stepping forward to tell people to STOP being resistant to a Reverse Mortgage and know the facts. It is the lack of education and the misinformation delaying many people from having a better retirement. Get the facts!