The reverse mortgage program is not a “one size fits all” program. Because not all borrowers have similar needs, a reverse mortgage can be tailored to each homeowner's situation. The program can offer a single lump sum payment, a credit line or lifetime monthly income. It is worth noting that the fixed interest rate program offers only a lump sum payment while the adjustable rate program offers all options. However, the adjustable program does not offer as much money as the fixed program.
Lump Sum Payment
Mary is unmarried and has enough monthly income to meet her needs. She and her husband purchased their home many years ago and have paid the mortgage off. Her husband worked as a handyman and was able to perform necessary maintenance on the home. Mary’s husband died several years ago, and the home has since fallen into disrepair. Mary does not want to sell her home, but she does not have enough income to qualify for a traditional refinance. Even if Mary did refinance her home, it would be difficult for her to make mortgage payments and continue her standard of living. Mary decides to get a reverse mortgage since it would allow her to access some of the equity in her home without making payments. Because she does not need monthly income but does need cash to make the necessary home repairs, Mary chooses the lump sum option. Both the fixed rate and adjustable rate programs offer a lump sum. The fixed rate offers a greater amount, but the interest rate is higher. Because Mary is not concerned with the loan amount when she dies, she chooses a fixed rate reverse mortgage.
Bob and Sue are married and have no mortgage. Bob is a retired engineer, and Sue is a retired nurse. Both receive monthly income from their retirement plans and have no need for additional monthly income. Their home is in good condition, and they currently have no desire to purchase anything or travel, but they would like the option to do so in the future. Bob and Sue know that the reverse mortgage program changes frequently, and they are concerned that if they wait too long to enroll, the program may either not exist, or they may not qualify for as much money as they would currently. Bob and Sue decide to enroll in the adjustable interest rate program because it offers a credit line option that the fixed rate program does not. The money available to them under the program will earn interest on the credit line until they need it. Interest will not be charged on any amount left on the credit line.
Lifetime Monthly Income
Steve is an unmarried man who purchased his home 10 years ago. Steve’s only income is from Social Security. Steve is able to survive comfortably on his fixed income, but would like to eliminate his mortgage payment and receive some extra money each month for financial security. Steve decides to enroll in the adjustable rate reverse mortgage program because that program, unlike the fixed rate program, offers lifetime monthly income. Steve has enough equity in his home for the reverse mortgage program to eliminate his current mortgage, thereby eliminating his monthly mortgage payment while providing him with a few hundred dollars each month for the rest of his life, provided that he remains in the home.
Mark and Cindy are married and have owned their home for 20 years. They both collect Social Security, and Cindy receives additional income from a private retirement program. Their mortgage payment is relatively low, but they do have some credit card debt that they would like to eliminate. Mark would also like to purchase a new car and take Cindy on a cruise to Alaska. Mark and Cindy determine that they would need $50,000 to eliminate credit card debt, purchase a vehicle and take the cruise. They have no immediate need for any additional money. Mark and Cindy decide to enroll in the adjustable rate reverse mortgage program. They have enough equity to pay off their current mortgage, receive the $50,000 they would like and have the remaining amount earn interest on a credit line where it will be available to them in the future if they would like additional cash. They decided against the fixed rate program because it would require they take all of the money that they qualify for as a lump sum.
- “The Reverse Mortgage Advantage: The Tax-Free, House Rich Way to Retire Wealthy;” Warren Boroson; 2006
- “Reverse Mortgage Essentials: Providing Your Financial Independence;” Steve Lawson; 2004
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