House Rich and Cash Poor!!
Published in All About Seniors of the Upstate Winter/Spring 2021 Edition
By Mark Schumacher
Retirees often hold a large portion of their cash in an asset that isn’t thought of or even expected to be of any help to their retirement income security. Decades are spent investing money into the asset. That asset is their home. A common goal is to get the house paid for so there aren’t mortgage payments to make without the working income to make them. Meanwhile, many of these homeowners are concerned about being able to retire and have the cash they need to make it through retirement. House Rich and Cash Poor is a very common reality for homeowners that have invested so much of their cash into their home.
But as anyone who has paid off their mortgage can attest, we’re never really done paying for our home. There’s taxes. There’s homeowner’s insurance. In some cases there’s even homeowner’s association dues that need paying. How about home maintenance? It’s unfortunate that when we do finish paying off the mortgage the house doesn’t seem to get the memo, because the maintenance requirements of the house just - keep - going.
Reverse mortgage is a home loan designed specifically for homeowners age 62 and greater to borrow from their home equity without having a mandatory monthly mortgage payment. The homeowner is required to stay current on property taxes, homeowner’s insurance, HOA dues if applicable, and the ongoing upkeep of the home, which sounds shockingly familiar to what other homeowners already do. The Federal Housing Administration (FHA) introduced their reverse mortgage nearly 30 years ago. It can only be used with a primary residence and gets paid back once the homeowner no longer lives there. Here’s the story of a homeowner that got an FHA reverse mortgage in 2020.
Paul has lived in the South Carolina upstate for 15 years. Several years ago he was looking for a comfortable cottage-style home to relocate to and found exactly what he wanted. In March of 2020 he was looking at his finances. Given how healthy he was he thought “I might be around quite a while yet.” He has other investments besides the house. In fact the 401(k) investments he has had been doing so well that if something came up and he needed cash he didn’t want to have to tap those investments. Paul knew that reverse mortgage was what he wanted to do. He had investigated the program 5 or more years ago and he knew this was the time to act. So much of his cash was sitting there in his house. He set up the loan so that he could choose when he wanted to take cash out of it or leave it in the loan to access later. Knowing that the money is there for him has been a huge comfort factor. It gives him the flexibility to use the house for cash if he doesn’t want to liquidate retirement investments, so he can choose whichever is more advantageous to him. Per Paul, “It just made sense.”
Paul thought about the impact on his kids if he did get a reverse mortgage. For example, his kids don’t plan to keep his home when he’s gone. However, they will still inherit the home and will sell it and get the cash that remains in it after paying off the reverse mortgage. Second, he is of a mindset that if he wants a sleep number bed he’s going to buy a sleep number bed, or a car, or dental work, or whatever he has need of. Don’t misunderstand, Paul is not a spend-thrift. He is a retired financial professional with a natural inclination to carefully weigh significant purchase decisions. “What is the point of going without something that materially affects my quality of life? My kids can appreciate this as well and respect that I’m taking care of myself and not placing a financial burden on them to provide for me for the rest of my life.” As Paul discussed the reverse with his family, some family members even told him he has no need to worry about his finances, that they will be able to help if needed. While this is a wonderful thing he really prefers providing for himself as long as he is able. Considering everything, it didn’t take him long to feel comfortable with the reverse mortgage. Now that his loan is in place he feels a great comfort in knowing that if he needs cash he knows he can get it.
“My house is my castle and fortress” was reportedly stated by Sir Edward Coke in 1604. Perhaps “My house is also my bank” will begin to catch on for retirees in the 21st century.
Mark Schumacher is a licensed loan originator with Mutual of Omaha Mortgage, Inc. He has 15 years of experience helping retirees put their home equity to work for them. Mutual of Omaha Mortgage is a Top 5 HECM direct lender nationwide. Their office is at 1541 Wade Hampton Blvd, Greenville, SC 29609. Mark can be reached at (864) 906-2296 or MSchumacher@MutualMortgage.com. www.retireupstate.com