Billy (67) and Denise (68) got hit hard during the recession. They lost a significant portion of their retirement money and were worried about the rest of their retirement years. They needed a way to increase their monthly cash flow and were curious as to whether or not a reverse mortgage would be able to help. They reached out to a prominent real estate agent that they were friends with and asked who they would recommend and they ended up calling me.
Even though they had previously lost a ton of money in the market downturn, they owned their home free and clear. That equity in their home would prove to be the solution to their needs.
The reverse mortgage can be set up in many different ways. These options include cash out, a line of credit, monthly equity distributions (for as long as they live in the home or for a specified period of time), or a combination of these options.
We looked at the various options during the strategy session and Billy and Denise decided that the line of credit option would fit their needs the best. It would give them the flexibility to pull funds as needed to supplement their income.
My favorite feature of the line of credit option is that the unused portion of the line of credit grows in availability. It grows at the current interest rate plus .5%. This happens regardless of what real estate prices are doing or how much is owed against the home.
During our strategy session we also determined that they could pull up to $1,000 a month from their line of credit and that would last them almost 22 years. If they pull less, it should last them longer and vice versa. This was also based on the assumption that interest rates do not decrease. Decreasing interest rates will shorten how long the funds will last and on the flip side, increasing rates will increase how long the funds last. We hit historical lows of the 1 year LIBOR rate (used in determining the interest rate) in 2014 and have been on the uptick ever since.
The growth of available funds is my favorite feature for a very good reason. Assuming rates do not increase or decrease and they pull exactly $1,000 a month from their line of credit, they will be able to borrow well over $100,000 beyond what was available in their initial line of credit.
Needless to say, Billy and Denise are ecstatic that they were able to take advantage of the reverse mortgage to increase their cash flow during their retirement without taking on any new monthly debt payments.
Because they are so happy, they have been talking with their friends trying to get them to look into doing a reverse mortgage as well.
I hope you have very Merry Christmas and a safe, joyful New Year.
I work with clients throughout the state of Oregon. I can help you even if you are outside of Southern Oregon.