Because reverse mortgages are much misunderstood, and because there is a new type of jumbo reverse mortgage that most homeowners don’t know about, I’m going to write a series of posts that give real-life stories. Reverse mortgages are much more versatile than most senior homeowners imagine.
This post is my first real-life story.
Bill (the name is changed, of course) is a single man who has sufficient income to live but he would like a cushion. He also pays taxes on his retirement income which doesn’t please him. Bill is determined to stay in his home forever, even if he later needs home care. He is currently 71 years old.
My client has a decent income from social security and retirement accounts, but he knows home care is expensive. Bill doesn’t need it now, but probably will in the future.
It’s also important to him to leave the home with substantial equity, for his two daughters. They don’t want to live in it, but it’s his legacy to them to do with what they want.
His home is currently worth $1,600,000 and his current mortgage is only $197,000 so he is in a good position to lessen his burden of monthly mortgage payments while still leaving a great deal of equity to his daughters.
Here is the jumbo reverse mortgage he choose.
Bill took out $100,000 in cash to do some remodeling. After taking the $100,000 he had a credit line of $538,922. Unlike the regular lines of credit, this credit line, if untouched, increases in value each year. For example, if the original line is $538,922, in 5 years the balance would be $580,868.
But he can draw it down as often as he likes for as much as he needs and none of it is taxable. In addition, at the end of 5 years, if he hadn’t touched the credit line of $580,868, his home would have total equity of $1,515,907. Whatever amount he has used of that credit line would lessen the equity by that much. So, let’s say over the 5 years, he uses $200,000 of the line, his equity would still be $1,315,907.
Bill may never need the cushion of that half-million dollars that’s just sitting there waiting for him, but if he does, the peace of mind is worth so much more.
Also, he’ll never again have a mortgage payment which in itself, gives him greater monthly cash flow.
The low closing costs of $5,700 didn’t hurt either.