I originally met with Tim (not his real name), age 64, in late 2015. He was curious about reverse mortgages; how they worked and if they might work for his situation. Tim was self-employed and wanted to start working less, but at the same time he wanted to delay claiming his social security.
We did not close his loan until February of 2017. This was because when we first met, his wife had recently passed and the estate was going though probate. A couple months after probate was completed we started the process.
The main reason for Tim considering the reverse mortgage was to get rid of the monthly mortgage payment. With the mortgage payment no longer being a concern, he could work less and delay claiming social security. He could also start working on the potential of selling his business.
The other reason why he was interested in the reverse mortgage was because he had a home equity line of credit that was getting ready to move from interest only payment to a fully amortized principal and interest payment. His payment was going to increase approximately $300 a month.
Originally we structured his loan with the fixed rate option. This was because of the estimated value of the home and what he currently owed; it made more sense to get locked into a fixed rate. He was leaving about $5000 of equity on the table with this option, but we both agreed this option made the most sense.
After the appraisal came back, about $40,000 more than we had anticipated, it made more sense to go with the variable rate option. The reason for this is that there was now a little over $21,000 of equity he would have left on the table had we gone with the fixed rate option.
With the reverse mortgage in place:
- Tim is freeing up $645 a month in cash flow, which would have been close to $1000 a month with the new principal and interest payment that was coming this year.
- Tim is able to work less while still being able to delay claiming his social security.
- Tim now has $21,000 in a stand by line of credit that will serve as cash reserves should unforeseen expenses arise in the future. Not only will that, but the unused portion of his line of credit will grow in availability at his current interest rate + 1.25%.
If you are getting ready to retire in Oregon or thinking about it, give me a call to see if a reverse mortgage might be something worth considering.
I am located in Medford OR but work with clients all across the state.