Case #3: Reverse Mortgage as a component of a Financial Plan
Changes the Department of Housing and Urban Development (HUD) has made to the Reverse Mortgage guidelines over time have addressed the negatives you may encounter in discussing the product with your clients. No longer seen as a "loan of last resort", the professional financial planning community now recognizes the Reverse Mortgage Refinance as a valuable long term retirement planning tool.
To read a good summary of the Reverse Mortgage as a financial planning tool click here: read more
A very successful Coldwell Banker broker named Alex initiated the following actual Reverse Mortgage Refinance case that closed for his client he's know for many years:
Dan and Mary were both working at their jobs with Mary being the youngest at age 70. While they enjoyed working, with the help of their CFP (Certified Financial Planner) they were considering a Reverse Mortgage to help set up their finances so they could retire in eighteen months. When they mentioned this to Alex he referred a Reverse Mortgage specialist who was part of Alexes "referral team".
Dan and Mary's home in Brea, CA is worth $575k. They had an outstanding mortgage balance of $170k with a $1,400 monthly payment payable over 21 remaining years. They wanted to know if a Reverse Mortgage, along with a modest 401k portfolio and Mary's pension plan from eleven years at her current job could make it possible to retire and maintain their current lifestyle.
Solution:
Based on Mary's age as the younger of the two borrowers the couple qualifies for $314k from the Reverse Mortgage Refinance. This enables them to pay off the $170k balance of their current mortgage and save $1,400 per month which amounts to $16,800 per year and $168,000 over the next 10 years. In addition, they set up a line of credit (LOC) of $144,000 which if not utilized grows at 5% per year which in ten years will be approximately $242,405 - a very nice safety net augmenting their other investments. When asked they mentioned that their kids fully support the idea and stated that their Reverse Mortgage proposal was only three dollars different from the numbers their Financial Planner had shared with them.
The broker's knowledge about Reverse Mortgage Refinance, even though there is no immediate home sale involved, and his ability to bring resources to the table to help made a lasting impression on his clients.