My mom got her HECM reverse mortgage before I got into the business. I wasn’t even aware of her plan, so it was a bit of a surprise when she and her husband called to get my opinion about the idea.
“Honey, you're the real estate expert in the family and you know about mortgages,” she said. “What do you think about these reverse mortgages?”
I explained that I’d been responsible for processing closings on reverse mortgages for a few years and thought they were a great financial tool.
“Well, we're thinking we need to do one,” said mom.
Both my mom and her husband had lost their spouses a few years prior, so this was a second marriage for both of them. They had both sold their homes in Orange County, CA and moved into a beautiful home on the lake in Temecula, CA, which they purchased with cash.
Unfortunately, they didn’t do quite the due diligence they should have and were hit with some unexpected repairs after closing. For one thing, the place turned out to be completely infested with termites. My husband jokes that the only reason the house was still standing was because the termites were holding hands. You could literally put your ear against the wall and hear them crunching away. It was terrible! Adding insult to injury, they also discovered a roof leak in the family room.
Unfortunately, all those repairs ended up going on to credit cards. My stepdad didn’t want to have a mortgage, so he financed the repairs with zero interest credit card offers that would periodically come in the mail. They would pay down the card as much as possible until the zero interest introductory period ran out, then transfer the balance to another zero interest credit card.
The credit card juggling worked for a while, but it eventually became very stressful and frustrating. This wasn’t the retirement lifestyle on the lake my mom had envisioned. The reverse mortgage seemed like an ideal solution because it could eliminate the credit card headache once and for all and free up cash that could be used for more enjoyable things.
A HECM reverse mortgage is a type of home loan designed to give seniors 62 years of age or older access to a large portion of their home value without having to give up ownership of the home or take on a monthly mortgage payment.
As long as the required property charges (property taxes, homeowners insurance, HOA dues, etc.) are paid on time, no monthly payments are required and the proceeds don’t have to be paid back as long as at least one borrower is permanently living in the home.
The HECM reverse mortgage turned out to be an ideal solution because they were able to tap into their home equity to completely clear the credit card debt and eliminate the financial stress and headaches it had caused. They were able to completely pay off the debt, retain title ownership of their home, and they weren’t stuck with a monthly mortgage payment to boot.
They initially qualified for a total pool of cash worth $160,000 and used $80,000 of it right away to clear the credit cards. This resulted in a huge monthly savings! Even if their minimum payments were just 2% of the total $80,000 combined balances, that meant they were able to eliminate around $1,600 worth of monthly expenses!
The remaining $80,000 they qualified for was left in a line of credit that would be available for future use. The great thing about the line of credit is that it grows larger automatically over time, giving my mom and her husband access to even more money in the future.
They’ve only had to tap into the credit line twice since they got their reverse mortgage, and it’s now grown to over $100,000. They preferred not to have to tap into the line of credit, but it was ideal that they had it, because it made it possible to install a stair lift and make some additional roof repairs. They also enclosed the deck with a beautiful sun porch.
My great aunt always used to say that when her ship comes in, she’s going to travel and do fun things. My mom says the reverse mortgage was her ship. It came in and made it possible to not be burdened with huge credit card payments anymore. She and her husband were able to reduce their expenses so much that they were able to build up a nice travel fund and to enjoy her life. I love seeing my mom have a great retirement.