Ron Bush has been involved in real estate for over 40 years–as an attorney (California, not Oregon) and as a real estate broker. While in law school, he took many real estate-related courses beyond the standard Property Law course. As a practicing attorney, he engaged in Estate Planning (trusts and wills) in addition to handling real estate matters for his clients. His background in Law has proven to be very useful in helping his clients during his real estate career.
1) INCREASE YOUR SOCIAL SECURITY: If you wait until age 70 to take social security, you can increase your payments by about 30%. For example, the average social security is @$1,400/mo/ at age 62; this grows to@$2,100/mo at age 70. Use the reverse mortgage proceeds instead of social security; when you collect social security, you can start repaying the reverse mortgage, or not–you are not required to repay it.
2) GROW YOUR PORTFOLIO: if you have a portfolio of stocks & bonds, and the market is growing, use the reverse mortgage proceeds in place of spending down your portfolio. Many people think of exhausting their other assets before using their home equity through a reverse mortgage. This approach actually allows your assets to grow until you need them.
3) RECEIVE RENTAL INCOME: You can own a duplex, triplex or fourplex and have a reverse mortgage–as long as you live in one unit. The other unit(s) will generate rental income, in addition to your other income from social security, or portfolio income or annuities.
4) IN PLACE OF AN ANNUITY: Reverse mortgages feature “tenure” payments which last as long as you live in the house, EVEN IF the total of the payments exceed the value of the house. Example(from Wade Pfau, Reverse Mortgages, 2016; pg 97). if you own a $500,000 house, start taking tenure payments at age 62 and an “expected rate” (see your reverse mortgage loan officer) of 5.125%, you can receive over $1,4001 mo. This is a better rate of return than an annuity (at today’s rates). Reverse Mortgages also have “term” payments, these are for a fixed period of time and stop at the end of the term you select.
5) BUY A LIFE INSURANCE POLICY: If your family (or estate) will require cash to pay death or estate taxes (usually due within 9 months after your death), you can buy a life insurance policy, assuming you can physically qualify, to fund this. You could do this while you are still in good health, it cannot be taken away from later when you are not.
6) BUY LONGTERM CARE INSURANCE: Along the lines of #5 above, use the reverse mortgage proceeds for longterm care insurance, rather than selling your home to pay for longterm care.
7) IN PLACE OF A HOME EQUITY LINE OF CREDIT: A reverse mortgage is a loan against your home equity (HECM or Home Equity Conversion Mortgage). A HELOC can be cancelled, or the interest rate increased or the amount you can borrow reduced. None of these can happen with a reverse mortgage–once you have it, you have it. If home values decline, as they did during the Recession, the reverse mortgage cannot be called due, or cancelled. This is a good thing to do before you need it. For example: if it appears that interest rates will start to rise, you can lock in the current loan amount for the rest of your life; or, if you anticipate that you may have future needs, get the reverse mortgage now–it can’t be cancelled–then, lust don’t use it until you need to.
8) BORROW MORE THAN YOUR HOME IS WORTH: initially, the reverse mortgage amount is roughly 50% of your home equity, depending on your age and the interest rate (see your reverse mortgage loan officer). As time goes on and interest is added to the initial loan amount, if you stay in your home long enough, the balance of the loan can be more than the house is worth (also, if values decline). If this happens, because the Mortgage Insurance makes the loan “non-recourse”, neither you, your heirs nor your estate are liable for the shortfall.
9) “DOUBLE YOUR HOME-BUYING DOLLAR”: As noted in #8, your reverse mortgage loan amount is roughly 50% of your equity. If you have, say, $200,000 cash, you can buy a home with a value of approximately double that, or $400,000 (again, see your reverse mortgage loan officer).
10) ELIMINATE MONTHLY HOUSE PAYMENTS: One of the biggest benefits of an HECM reverse mortgage is that you are refinancing your current mortgage; it is paid off by the reverse mortgage and you no longer have payments to make–while you continue to live in your home, no payments are required to be made on the reverse mortgage. If you wish, you can make full payments, or partial payments, or no payments, or you can do a combination of these–the reverse mortgage is more flexible than other loan programs.
NOTE: There are other uses of reverse mortgages. These are only some of them. Please see your reverse mortgage loan officer for lending requirements. We are NOT loan officers, we are real estate brokers.
NOTE: This is intended to be and must be regarded as solely information and not as advice, whether of a financial or legal nature or both. For advice about your personal circumstances, consult a qualified professional of your choice.