Brian, 63, is a financial planner in Central Florida. The motto on his website is “Retire With Confidence.”
An avid golfer, Brian lives with Lisa, his wife of 30 years, in a home they built in 1997. Lisa, 61, once owned a graphic design business but is retired.
Though he has no immediate plans to retire, Brian, who asked not to use his last name for privacy reasons, recently took a significant step toward improving the couple’s long-term financial security. He obtained a Home Equity Conversion Mortgage (HECM) and used the bulk of the proceeds to pay off the $310,000 mortgage on the couple’s home, thus eliminating a major monthly expense.
He first learned about reverse mortgages after attending a housing wealth class taught by a reverse mortgage loan officer. When it came time to explore one for himself, he reached out to a friend in Chicago who recommended Jerry Auippa, CRMP, a loan officer based in Houston, TX, with Longbridge Financial.
During the online consultation, Auippa explained how reverse mortgages worked, answered their questions, and estimated what they might qualify for. Afterward, Brian and Lisa met with an independent HUD-approved housing counselor to discuss the numbers and other options besides a reverse mortgage.
“A reverse mortgage provides options to do whatever,” Brian says.
After paying off his mortgage, Brian set up the remaining $46,000 in proceeds in a line of credit that will grow over time.
“I may never use the funds in the line of credit, but the proceeds will always be there if I need them,” he adds.
One interesting wrinkle in the transaction is that Lisa was underage when Brian applied for the reverse mortgage. FHA requires all borrowers to be 62 or older. However, one spouse can be underage if the other is age eligible. The underage spouse is known as a nonborrowing spouse (NBS).
Although she’s not a party to the loan, Lisa attended the counseling session with Brian to better understand how reverse mortgages worked and to see what would happen if Brian pre-deceased her.
If that happened, the reverse mortgage account would be frozen, meaning Lisa would not have access to the remaining funds in the account because she wasn’t a borrower on the loan, to begin with.
However, she could continue living in the house for as long as she wanted, as long as she remained an eligible NBS. To qualify as an eligible NBS, Lisa must have been legally married to Brian when the reverse mortgage was made, which she was; she lives in the home as a primary residence; she remains current on paying property taxes and insurance; and she maintains the condition of the property by FHA guidelines.
Brian said he wouldn’t necessarily recommend a reverse mortgage for all his clients. But for those where it makes sense, he’ll explain the option of using home equity in retirement.
“If I am talking to somebody and they tell me most of their wealth is tied up in the home, then I am most likely going to at least mention reverse mortgages as an option, and then they can make their own decision,” Brian says.