A Reverse Mortgage can serve a variety of needs. The following scenario is not that unusual these days.
Dennis and Jill retired young. Their plan was to stop working at 55 and travel.
They are both 57 years old now and their children are grown. A substantial part of their net worth is tied up in their home’s equity. They also have substantial retirement accounts but they aren't old enough to access those without penalties. They have to dip deeply into savings if they aren't going to be working yet spending money traveling. In addition, they have those hefty mortgage payments.
They don’t want to sell the home but continuing to make mortgage payments when they are absent is putting a strain on their savings.
Their home is worth about $2,300,000 in today’s market and their mortgage was only $302,000. Their mortgage had been a 15-year loan with 5 years left and their payment, not including taxes and insurance was $5,550.
By refinancing into a jumbo reverse mortgage with a fixed rate, they not only were able to stop making mortgage payments, but they were also able to cash out over $480,000. This enabled them to travel the world as often as they choose. With no mortgage payment, their cash flow was more than enough.
And what about their equity? Well, remember they paid off their old loan and took an additional $480,000 which they invested. Their equity remaining after 5 years, at an estimated 4% appreciation, is $1,662,000. They will also have whatever they haven't spent of the $480,000 they invested.
They are young, and plans change. If they get tired of traveling and decide to stay home and start working again, they will have the option of either keeping their reverse mortgage or refinancing into either a standard loan or a new reverse.