The popular press has said some pretty nasty, and uninformed things about ‘reverse mortgages’ for senior citizens. I believe these loans, when used properly, are a tremendous tool to benefit anyone over the age of 62 to afford a much higher lifestyle during retirement. Understanding the risks is important, and we believe in educating borrowers before they even apply for a reverse mortgage.
ReverseMortgageDaily.com is an excellent resource.
Here is an excerpt from my book “Besting: Better Nesting” that shows one way to use a reverse mortgage’s potential:
“Using a Reverse Mortgage to Own a Second Home
Theresa was living alone in Michigan, where the winters can be cold and harsh. Her home has appreciated over the years and was worth $350,000 when she decided she could no longer stand another winter in the Midwest. She had worked diligently to pay down her mortgage to $45,000, by having a 15-year mortgage during her working years.
Her monthly mortgage payments were $404 per month. The prospect of buying a second home in Florida with an additional mortgage payment would stress her fixed income too much. She felt destined to rent or move permanently to Florida. “I loved my Michigan home, but I wanted to be in Florida sunshine for more than a couple months and I believe in ownership not renting” Theresa said.
She also had some repairs she wanted to do to her home that would make it more comfortable, and maybe more valuable. But without a little extra cash, she felt the repairs would have to wait.
Being 66 years old, she was able to obtain a reverse mortgage. After attending a required educational program on the details of a reverse mortgage, she took a lump sum version of the loan. The reverse loan paid off her $45,000 mortgage, and gave her a one-time lump sum of $125,000. She will never need to pay another mortgage payment on her Michigan home, yet she can own it for the rest of her lifetime. She saved $404 a month in mortgage payments, that were freed up to supplement her retirement income.
First, she made the repairs to her Michigan home.
Then she found a condo hotel unit in Orlando for $125,000 and paid cash to purchase the property, owning it free and clear. For 3-4 months in the winter she intends to stay at her new condo hotel, and will enjoy the amenities of a full service hotel, in a prime location. The other guests at the hotel will provide her an endless stream of new people to meet and play golf with at the many neighbouring courses.
When Theresa heads back north to her Michigan home she will hand the keys to the hotel’s front desk and they will rent her condo nightly to visitors to Disney World and Orlando’s numerous other attractions. Her 42% share of the rental income will help subsidize the condo dues, property taxes and possible provide yet another stream of income for her now super charged retirement lifestyle.
At any point that she chooses to move to Florida full time, she can sell her Michigan home and pay off the reverse mortgage. If her home continued to average the historical appreciation of the past, she will like have more cash equity from the sale than she did the day she took out the reverse mortgage. Plus her condo hotel is also growing in value. None of this value is taxable until she sells the properties, “its like the ultimate tax-free retirement account,” she claims.”
One Comment
Great article! The only thing I had ever heard on reverse mortgages were bad and that was it. I like your approach.
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