In a recent weekend edition of The Wall Street Journal, several financial advisers described ways that their clients could benefit from reverse mortgages. In one example, the adviser explained that a client could receive more in income from a home than the home is valued at when the reverse mortgage is taken. Homes have shown a historical tendency to appreciate in value over time and that is the factor that makes this possible.
The adviser takes the example of a 66-year-old with a house valued at $340,000. After subtracting the closing costs on a low-cost, FHA-backed floating-rate reverse mortgage known as HECM Saver, that retiree could get a loan for about $173,000, which translates into a monthly check of $1,006 for the rest of his or her life.
By age 86, the payouts would have totaled more than $240,000; after another decade, the total would be $360,000. A “standard” reverse mortgage, with higher closing costs, would pay out $414,000 over 30 years.
Real income numbers, real retirees
This is a powerful example of how a reverse mortgage could be used to provide financial security during retirement. Over the long run, house prices have moved higher with inflation. In the housing bubble that swept through many parts of the country, the pace of home price gains accelerated well beyond the rate of inflation.
In recent years, the declines have been fast and sharp in many markets, but signs of stability are emerging almost everywhere and it is very likely that price moves will get back in line with the historic average. With inflation expected to stay low, home prices will probably show small but steady gains soon.
Those slow but steady gains can add up over time. The example in The Wall Street Journal article showed this. A seemingly small gain of three percent a year would see home prices double in about 24 years. In dollar terms, it means your home could deliver a great deal of retirement income to you.
That example highlights the value of setting up the reverse mortgage early in retirement.
This is also becoming a more common recommendation from financial advisers. By setting up the reverse mortgage as a line of credit, you could be prepared for emergencies even if you don’t have a large amount of cash in savings.
The reverse mortgage would be your emergency cash reserve. But you have to get it set up before an emergency takes place.
Consider giving one of our representatives a call today at 1-888-678-0818 to learn more.