When I create my personal balance sheet, I list all my assets and liabilities. The assets include bank deposits, investments, retirement accounts – and my home. Of course, my liabilities include credit cards, student loans I signed for (I have three in college), and my mortgage. That's my picture at age 54. But for retires, the home does not always appear as an asset, even if it is free and clear of any mortgage. Folks consider it "wealth", but it really is an asset that has a zero rate of return. Some think that because real estate values rise, that means they "made money" on their home. This is simply not true.
No doubt retirees find much security in having their homes paid off, not having a monthly mortgage payment to make. That is great for cash-flow. But for many retirees, their home is the only asset they have. Many different agencies report that as many as 70% of retirees have less than $ 25,000 in retirement funds, and an equal amount depend on Social Security benefits as their sole source of income in retirement. This is a very sad statistic.
So how can that home, that proverbial "nest egg" turn into an income-supplementing asset? Before I answer that, I want to point out that many seniors say their home is their nest egg, and that it is where they would turn to for cash. Well, there are two ways to get money out of your home – you can sell it, or you can take a mortgage. If you take out a mortgage, you can have a monthly payment, or do not have a payment.
Recently I met with a client, age 75. She needed to supplement her income. Her husband of 50 years passed away, and she found out that she will be living on much less income than before. Her husband's pension ended upon his passing, and of course the SS benefits decreased as well. Seven years earlier her bank recommended she take out a HELOC. That worked well for a while, until the payments started to increase and she approached maxing out her line. She absolutely was left with a payment and no income – just the opposite of what she came in asking for. Now HELOCs are a fine way to access a home's equity, but it is not a solution for supplementing income, especially in retirement age.
A much better solution would have been a reverse mortgage line of credit. There are no monthly payments (interest accrues). The line actually grows (currently about 4% a year), and can never be called in. Credit requirements are minimal (not credit score driven, no debt / income requirements).
In this client's case we are extinguished her current mortgage, eliminated her monthly payment, and still provide her to provide a significant line of credit. But the improved cash flow was enough for her to maintain an excellent quality of life.
Finally, a reverse mortgage is not something that should be sold. It is a financial tool that can improve the quality of life for seniors, reserve assets, and eliminate much potential financial and emotional duress for the senior and their families.
For more information, contact me or visit www.topflitereverse.com/florian to see what you can qualify for.