Reasons Why Seniors Choose a Reverse Mortgage
1. To pay off existing mortgages and eliminate monthly mortgage payments
2. To provide supplemental payments (many seniors receive up to $500 to $1,000 per month to supplement Social Security and their monthly pensions.)
3. To establish a significant line of credit account, to help pay property taxes and other major expenses such as home owner’s insurance.
4. To buy a home
5. To use funds to prevent foreclosure.
6. To travel more often.
7. For home repairs and home remodeling.
8. To buy a new car and other big ticket items.
9. For in home health care, prescription costs and other health care.
10. For the security of having money available whenever needed.
11. To have the freedom that a little extra money can bring to enjoy their golden years, and enjoy the activities and things they enjoy doing.
This is a list that is similar to one many websites about reverse mortgages may have, I'm going to list a reason that usually is NOT a good reason.
To invest the money from a reverse mortgage.
The following is my opinion and my reasoning. While there might be occasions when this could make sense, I believe that in most cases it does not.
1. If the money is not invested and left in the line of credit option, the line of credit grows at the same rate the borrower is being charged. If the current interest rate is 5% and the borrower has $200,000 to start with, after a year the balance would be $210,000. In general, interest charged when you borrow is higher than savings or even CD interest. If the borrowing rate rises, so does the rate of growth for the line of credit. I'd be surprised if the line of credit rate was less than the savings, CD or treasury bond rates at any point in time.
2. When you take the money out to invest, you will be charged interest on the money borrowed. If you took $200,000 out of the reverse mortgage to invest, you would be charged $10,000 interest in a year and the balance you owe would be $210,000. At a minimum, in this example, you would need to earn more than 5% risk free to do more than break even.
3. When you consider you are giving up 5% tax free on the growth of the $200,000 line of credit and being charged 5% on the $200,000 balance you borrowed to invest, you would need to be earning over 10% risk free and tax free to break even.
4. I acknowledge that if you sold the home, you would still have the investment. However the initial $200,000 you borrowed plus the compound interest on that amount would be subtracted from the equity (the check from escrow) you could have had when you sold the home.
Would you like to receive a detailed quote on how much money you could receive in a Reverse Mortgage. Please use my Quote Request Form