I recently received a call from a couple in Hemet, CA.  They are interested in finding out how a reverse mortgage can improve their retirement.   I’m excited to meet with them because they have already improved their financial situation greatly by paying off their mortgage and now own their home free and clear.  They receive Social Security and a small pension but don’t have much in savings and are thinking about whether or not a  reverse mortgage would help them to have a more secure retirement.  I certainly think so and would love to hear your comments.

In their situation they have a home worth $350,000.00 and they are both 75 years old. My proposal to them will read like this.  $10,000.00 in cash at closing to beef up their savings account and then a growing line of credit in the amount of $205,555 for emergencies.   They could also opt for monthly tax free cash of up to $1300.00 for as long as they live in the home.

The costs for the loan will run $9795.00 including upfront mortgage insurance, closing costs and origination fee.

If they do not touch the line of credit, in about 10 years they will have access to a line of credit that started at $205,555.00 and would likely grow available credit of over $350,000.00*. That could certainly come in very handy to pay for home health care if they need it (or any other emergency for that matter).   Basically like a self funded long term care policy. Now, truth is the cost of skilled nursing care in their area averages at $78,475.00 per year according to the Genworth Long Term Care – California Riverside County website cost of care table. And the American Association for Long Term Care estimates that 44.8% of applicants in this age group are denied long term care insurance.

I think a reverse mortgage at this time would provide them with a source of emergency funds and peace of mind.  What do you think?