Grandpa Dick and Grandma Jane paid off their house in 1999. Dick was 70 and Jane was 65.
Dick died peacefully a couple of years ago at 90 and left Jane in great financial shape with a $750,000 home free and clear, no other debt and $70,000 in savings. Jane’s income went down upon his death by about 30% but she had one less mouth to feed and her monthly cost of prescriptions and auto insurance went down.
Today, Jane’s $4,500 per month gross income is Social Security and her survivor’s share of Dick’s pension. Jane’s property taxes and insurance add up to $400 per month and she now has about $30,000 left in savings because she had to put on a new roof, replace all the flooring, buy new kitchen appliances and she always buys gifts for her four grandkids and two great-grandkids at Christmas and graduations.
Grandma Jane is healthy as a horse and swims three days per week in her awesome swimming pool. Jane loves her one-story house and never wants to leave her beloved home.
Jane’s three kids are all over 55 and, thankfully, none are financially dependent on Jane but none of the three kids are millionaires.
Jane’s house is now appraising at $870,000 and she survived the miserable pandemic. Jane’s net take home each month is $4,000, which isn’t bad, but she is taking $1,000 per month from her savings each month and continues to have home and auto repairs. Jane and her kids realize the savings will be gone in two years.
Jane and the kids decided to take a one-hour HUD sponsored counseling class on how a reverse mortgage might help her over the next 10 to 15 years because they all agree, Grandma Jane will probably make it to 100.
They decided to move forward with a reverse home equity conversion line of credit and take out $50,000 now to totally renovate the swimming pool and take the entire family to Hawaii for 10 days. The line of credit is $450,000, which allows her to take a monthly distribution of $1,000 per month so she doesn’t have to see her savings account dissipate any further, and if ever she needs a lump sum of $10,000 to $20,000, she can simply make a call for the amount needed.
The kids and her financial adviser are calculating that when Jane turns 97 in 10 years her loan balance may be $300,000 and because the unused portion of the line of credit grows each year, her available line of credit will be $200,000 that she can use any way she and her kids see fit.
The life insurance industry was brilliant when they decided to call death insurance, life insurance. The mortgage industry wasn’t that smart when they decided to call this loan product reverse because this isn’t Grandma Jane going backward, this is Jane and her kids moving forward. Go, Jane, go.
If Jane dies at 97, she will leave the kids a $1 million home and all they must do is pay off the $300,000 Grandma Jane used over the past 10 years when they sell or refinance the house, which is in the Dick and Jane Family Trust.
Jim Porter, NMLS No. 276412, is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.
