Reverse Mortgage a Good Idea… if the Numbers are Right
Syndicated columnist and financial expert Bruce Williams discusses the sometimes useful, often controversial subject of reverse mortgages in his most recent Smart Money report. Here’s his assessment of a reader’s difficult financial situation as it appears in today’s Reading Eagle:
QUESTION: My husband and I are retired, with an annual combined income of $31,500. We own our home, which I inherited from my dad after he passed away.
He was frugal, so in his later years he didn’t put much money into the house, only what was necessary. The house is 89 years old, and I am noticing many things that need to be addressed.
My husband and I like living here, and the property taxes are reasonable. What we worry about is the upkeep of the house. I have $34,000 from my 401(k), which I rolled over to an IRA. We also have $14,000 in a savings account.
I don’t want to use any of this, except for emergencies. My husband is 74 and his health seems to be deteriorating. I am 67 with good health.
I have heard of the reverse mortgage, but you hear all the pros and cons and it gets so confusing, especially at our age. We wouldn’t want to do something we will regret. Retirement homes are pretty expensive, especially in our income bracket. Can you help us out?
ANSWER: You neglected to provide one important detail: how much the house is worth.
The amount of the reverse mortgage is established by the average value of homes in your area. Reverse mortgages are not a bad idea. This type of mortgage is a useful tool, allowing you to use funds that otherwise would be locked up, and not have any obligation to repay them during your lifetime. That’s the good news.
The bad news: At age 67, you could have a 25-year life expectancy.
As a result, the amount of money that can be borrowed on a reverse mortgage will be diminished. You also should know you will have life rights to live there and, even if you exhaust the amount of money loaned, as long as you pay the taxes and the homeowner’s insurance, you can stay in your home.
The mortgage lender doesn’t get his money until both of you have passed away. It very well may be a good idea, but until we can establish how much equity there is, and what your needs are, whether or not this is a good move on your part remains a conundrum.