I wanted to share with you a story that will show you how a reverse mortgage has helped someone to the point that I'd like to label it "perfect" for her. The perfect reverse mortgage...
I met "Ms. Smith" at an educational meeting in Boca Raton, her eldest son joined us to learn more and to see if a reverse mortgage was right for their specific situation. Her son and I spoke at length during and again after the meeting, and I spoke to Ms. Smith several times prior to meeting her to get her loan application completed and submitted.
Her story is like many I have heard over the years. She has come to the point in her life in which she simply needs more money every month to keep her budget in line with her income.
Her husband had recently passed, and as many of you know, when a spouse passes away, the social security benefit and pension benefits disappeared as well. When you combine a massive decrease in her 401k plan, the economic meltdown in the U.S., and of course, her home value in south Florida plummeting from the height of the market, she needs help - and she needs help now!
Her children are comfortable and doing well, and they all let me know that they are not waiting for their mother's home, nor are they waiting for the money that would result from a sale if she should pass away unexpectedly. They want their mother to live as comfortably as possible, regardless of what is "left over" for them in the end.
This is a critical piece of this case, as some pundits object to the reverse mortgage due to the fact that it decreases the amount of cash that the heirs will inherit. I have strong opinions about this. In most cases, the senior parents paid for the home, and made sure that their children were fed, educated, taught right from wrong, and also made certain that they were ready for the world when they became legal age and went out on their own. Now, in their senior years, the parents are supposed to hoard the equity in their home in order to give it to the kids instead of bettering their own lives when they need it the most?!
This is simply NUTS to me. Kids become adults, and for those adults to be in waiting for the cash that comes as a result of their parents demise is simply not something that I have respect for. Especially when the senior is suffering financially and has the ability to tap into what they have amassed.
The reverse mortgage is designed to allow the senior homeowner access to the cash that they have built up as equity in their homes, plain and simple.
The reason that I call this particular situation the "perfect reverse mortgage" is this: When you look at what the senior client wants, the history of the property, the need for money, and the desire to remain in the home for the next several years, it all adds up to a perfect need for a reverse mortgage.
WHAT SHE WANTS TO DO
Ms. Smith is a happy woman, and has very clear plans for her future. She wants to live in the home for the next 5-10 years, and when she cannot physically keep up the property, she wants to downsize to a condo near the ocean.
Now for the numbers involved. Mr and Mrs. Smith bought their home 37 years ago for less than $40,000. They paid off the mortgage after 25 years, and now own it free and clear. It is worth about $290,000 today. She qualifies for just over $188,000 in cash with a fixed rate FHA reverse mortgage loan. Her plan is to use about $10,000 per year for her needs. She revealed to me that she loves her home and wants to stay there for another 8-10 years.
Here is where this loan, in this case, becomes perfect in my mind. Ms. Smith is aware of the fact that congress recently approved using s HECM reverse mortgage as a purchase product for seniors. Her plan is to stay in her home as long as she is comfortable and able to maintain it and enjoy it as she does today. In ten years, she will have AT LEAST $90,000 remaining in her account from her reverse mortgage proceeds. (I am keeping it simple here, eliminating the guesswork involved with how much she can make on her money, through investments, cds, or simple interest) That means that she will have the ability to use some or all of that money to move into her next, smaller home, and never have to worry about mortgage payments. Simply put, she will put DOWN about 1/3 of the purchase price using the HECM for purchase, move in , and have no future mortgage payments, ever.
In summary, Ms. Smith gets the cash she needs to be comfortable, is guaranteed never to make a payment on the loan, is guaranteed to never be forced to move, and will have the reserve funds available in cash to downsize if and when the time comes. Her heirs are not waiting for her money, they have her best interest in mind above any financial gain.
I have seen several uneducated journalists and congress members choose to label reverse mortgages negatively in order to gain attention. I see this as irresponsible, as the majority of seniors who have one say that they would do it again in a heartbeat, and if anyone actually does their homework, they would find that Mrs Smith joins over 500,000 seniors across America who have tapped into the equity of their homes to assist them with income in their "golden years." She also joins the 93% of seniors who agree that the reverse mortgage has improved their quality of life. Is the reverse mortgage "perfect" for every senior? I am not stating that at all, every situation is different! For Ms. Smith however, it was indeed the perfect reverse mortgage.