The Basics: How You Might Use Your Reverse Mortgage Proceeds

Reverse mortgages can offer you a monthly source of funds to help provide you more choices, financial control, and flexibility in retirement years. Here are some typical uses:

Paying for everyday expenses
Making home repairs and improvements
Covering medical expenses
Helping to financially support family members
Paying off loans or bills
Maintaining or improving your quality of life

Scenarios of How a Reverse Mortgage May Be Useful

Reverse mortgages can provide solutions for many different situations. The following are just a few hypothetical examples* of how a reverse mortgage might be helpful:

Reverse mortgage can provide extra needed income.

The Need: A 75 year old widow has a $12,000 annual income from Social Security and pension benefits. Although this was sufficient income initially, over the years unexpected expenses have caused her to cut back on some essentials and pay for other items on credit cards. She would like to pay off her credit card bills that have grown due to her income not meeting her monthly expenses.

Solution: With a reverse mortgage, she would be able to receive additional monthly income without incurring additional mortgage payments or putting her house on the market. Her $450,000 home could generate a total benefit of $277,833 resulting in a monthly income of $1,524.

End Result: The additional income would allow her to pay off her credit cards and have, for example, new carpet installed in her home. She would even be able to afford to visit her grandchildren in Florida.

Reverse mortgage could help couple handle medical expenses.

The Need: A couple in their mid-seventies is enjoying their retirement, when unexpectedly the husband suffers a major stroke. Fortunately, he survives but requires very costly 24-hour in-home care. With little extra in their savings, his wife faces the possibility of having to put her husband in a skilled nursing facility or being forced to spend down their savings to qualify for Medicaid.

Solution: Using a reverse mortgage, they could access the equity from their $650,000 home. They could convert this equity into $90,000 per year of tax-free cash, without assuming payments or giving up their home.

End Result: From a line of credit, the wife would be able to pay the $4,000 a month for in-home care and would not have to sell their home or put her husband in a skilled nursing facility.

Reverse mortgage can provide help for adult son.

The Need: John and his wife, Kathleen, live in California and his 72 year old mother lives in the house he grew up in Chicago. As a long distance caregiver, John visits as often as possible between business trips and vacations to help his mother maintain her older home. She receives a modest income from Social Security and her CD's. Recently, John has been sending her $500 a month to help out with the increased health care costs but he can’t afford to replace her leaky roof. Now, John’s daughter has been accepted to a university back east and he is faced with tuition expenses for his own family. John feels caught in the middle trying to care for all of his family members. His mother owns her home free and clear and although she tells him she wants to leave it to him, he would prefer that she live comfortably and not have to cut back on essentials.

Solution: A reverse mortgage on his mother’s home could provide monthly income for his mother and pay for the needed repairs for the home. With a reverse mortgage, her $250,000 home could generate $134,000 in total benefit or a monthly income of $915.

End Result: The additional income would allow John’s mother to pay for her medication and have a new roof installed in her home. John and Kathleen would have the comfort of knowing that his mother is living comfortably in her home and meeting day-to-day living expenses. In addition, they could now apply the $500 a month John previously sent to his mother towards their daughter’s college expenses.

Reverse mortgage can provide funds for home improvement.

The Need: A 76 year old husband and his 74 year old wife bought their retirement home in Las Vegas and have lived there for 9 years. Their combined income is $22,000 annually from Social Security and pension benefits. This is sufficient income to cover their expenses and a few extras, but now the house needs some major work. The air conditioning needs to be replaced and there is a major plumbing problem involving re-piping the house. Their credit is average but they do not like the prospect of incurring additional credit card debt and the extra monthly payments.

Solution: With a reverse mortgage, they would be able to receive the money they needed without incurring additional payments. Their $375,000 home could generate a benefit amount of $167,000 to pay for their repairs.

End Result: The money from the reverse mortgage would allow them to pay for their repairs, take a cruise to Bermuda and leave $100,000 in their line of credit for future emergencies.

Reverse mortgage can provide funds to choose quality care environment for spouse.

The Need: An 82 year old man has been caring for his 80 year old wife who has been suffering from Alzheimer's disease for over a year. Even though he has assistance from family, friends and professional caregivers, he is increasingly concerned for her safety since he is unable to provide the level of care she needs around the clock. Upon the advice of her physician and with the support of their children, he is considering the option of having her live in a secure Memory Care residence where she will receive the 24-hour care and supervision she requires. However, their monthly income is currently not enough to cover the additional expense of $4,000 a month. His only option would be to sell the home and move in with their son to be able to pay the monthly fee for her to live in a safer environment.

Solution: With a reverse mortgage, he would be able to turn the equity in their $600,000 home into a $223,526 line of credit.

End Result: The money from a reverse mortgage could make it possible for the husband to choose a quality Memory Care community for his wife without having to sell their home. Since this would reduce the stress of caring for his wife, he would be able to enjoy more of the time they spend together. It also would free up the time of his family and friends who had been assisting with her care, which could result in more rewarding time spent with them.

Reverse mortgage can help fund grandchildren’s college education.

The Need: An active senior couple, aged 72 and 74, would like to help with their grandchildren's future college expenses by adding to funds in existing 529 plans. Tax laws allow them to contribute $10,000 each ($20,000 for the couple) for each grandchild per year, for a total of $80,000. They want to do this without disturbing their current income.

Solution: Using a reverse mortgage, they could access funds from their $950,000 home. They could convert their equity into $475,000 of tax-free cash, without assuming payments or giving up their home.

End Result: From a line of credit they would be able to contribute $20,000 each year to their grandchildren’s 529 funds, reduce the taxable portion of their estate, and maintain their annual income.

*These are only hypothetical examples. A Reverse Mortgage Specialist will be able to discuss your specific circumstances and provide you with information about reverse mortgage options which may be useful to you.

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