Reverse Mortgage Scenario: Supplementing Income
A reverse mortgage can be a valuable tool for homeowners age 62 and older. It is a smart and safe way to access home equity as a retirement asset, but just how much money can you access if you are eligible?
This depends upon a number of factors, including the age of the youngest borrower or non-borrowing spouse, your home value, the amount of equity, FHA lending limits, the current interest rate, and the reverse mortgage product and payment option you choose. If you have an existing mortgage, your reverse mortgage will first be used to pay that off. A reverse mortgage specialist can provide a no-obligation quote that is tailored to your specific situation.*
Reverse Mortgage Payment Options
You can take reverse mortgage proceeds in the following ways…
- Line of credit
- Term (monthly advances for a set period)
- Tenure (monthly advances for as long as you live in your home)
- Lump sum
The way in which you plan to use proceeds will determine how you take them.* Here are a few common examples…
- A line of credit could be used to establish a “standby” cash reserve that will be there when you need it.
- Term or tenure could be used to supplement monthly income with a steady stream of funds.
- A line of credit or term could be used to delay Social Security payments for a larger monthly benefit.
- A line of credit or lump sum could be used to make home modifications or repairs.
- A lump sum could be used to pay off an existing mortgage or to buy a home that better fits your lifestyle.
Sample Scenario: Supplementing Income
The following sample scenario from Reverse Mortgage USA may help you to better understand how reverse mortgages can be used to supplement monthly income and establish a financial safety net.
Mary and John, both age 70, have an appraised home value of $300,000 and no mortgage. They have saved well for retirement, but could use some extra funds for monthly expenses. They’d also like to establish a cash reserve that will give them easy access to additional funds should they need them, to avoid dipping into invested assets that are a source of income.
Mary and John qualify for $165,465 in reverse mortgage funds. They opt to receive $500 per month, for as long as they live in their home. This helps offset their daily expenses and healthcare costs.
After $81,857 are set aside to cover the lifetime advances (known as “tenure payments”), this leaves them with an additional $83,608 that they take as a line of credit, which they can draw upon as needed. As an added benefit, the unused line of credit grows over time, regardless of home value—providing more available funds.
If their expenses increase in the future, they can change the amount of the tenure payments (thereby reducing the line of credit); or they can draw funds from their credit line.**
Interested in learning more?
Email me to schedule a no-obligation consultation.
* Consult with a reverse mortgage specialist to learn more.
** This illustration is for educational purposes only and assumes a borrower age 70 who resides in California and an adjustable initial interest rate of 3.576% with a margin of 2.750%, and financed fees in the amount of $9,435. Rates may increase for adjustable rate loans. Rate quote generated on 10/22/2015. Rates are subject to change.