John Leer III had been helping his father run the family business for 32 years when he decided on a new career path in the mid-2000s. John settled on becoming a reverse mortgage loan officer after the positive outcome his parents had getting one.
It all began in 2005, when John’s parents read an article about reverse mortgages in the Chicago Tribune.
“They called me and asked if I would look into it,” says John. “I had no idea what a reverse mortgage was other than all the misconceptions that are still common today. I called a friend who was a mortgage manager at Wells Fargo and he explained how it actually worked and connected me with a reverse mortgage consultant.”
John, Jr. and Patricia Leer, who were 80 and 75 at the time, managed a successful, family-owned wholesale-to-retail business in Chicago that John’s father founded in 1925.
“We sold home accessories for the kitchen, bar, etc. to retail shops and earned a commission on the sale,” says John. “I left the family business 15 years ago but my wife Sarah oversees things now. Her current specialty is ladies handbags and home accessories.”
It’s Time to Move
When John, Jr.’s health started to decline, John III and his siblings convinced their parents it was time to move closer to family.
“I said, ‘You know, I think it’s time that you move back up to Minnesota,’ says John. Both my parents grew up in Minneapolis and then ended up in Chicago where I grew up. I didn’t know how they would react to that, but my mother was very forward thinking, She was a businesswoman. She was very pragmatic and she was like, ‘yeah, you’re right, I think it’s time that we move.’”
The Leers took the equity left over from the sale of their condo in Chicago, borrowed funds from Patricia’s brother, and bought a new condo in Eden Prairie, a suburb of Minneapolis, for $260,000. They immediately took out a $160,000 mortgage to pay back Patricia’s brother, which resulted in a monthly mortgage payment of $1,000.
“Having a $12,000 annual mortgage expense on a house that, more than likely would have never been paid off in my parents’ lifetimes, put extreme pressure on their living expenses,” says John. “It also put a tremendous amount of stress on their IRA (Individual Retirement Account). If they would have continued on a path of traditional mortgage payments, they would have run out of IRA money in ten years.
Preserving Retirement Funds
After learning about the pros and cons of reverse mortgages from their son, John, Jr. and Patricia proceeded with getting one from Wells Fargo. After closing costs were paid, the Leers netted $190,000 in reverse mortgage proceeds, which allowed them to pay off the $160,000 mortgage and set up a line of credit for the remaining $30,000.
“My parents going the reverse mortgage path, when they did, preserved their IRA funds, which grew nicely with the positive market,” says John.
In 2014, Patricia was ready to move into assisted living. She took the $30,000 still sitting in her line of credit and transferred the funds into her savings account to live off after she moved into assisted living.
The balance owed on the reverse mortgage was $220,000. Because the Great Recession had occurred only a few years prior, the condo had lost a lot of its value and appraised for $160,000.
Luckily, because all reverse mortgages are “non-recourse” loans, Patricia was never responsible for paying above what the home eventually sold for.
“My mother was able to afford the best senior living facilities for the remainder of her life,” says John. “This all was made possible because of her ability to take advantage of the reverse mortgage program. This preserved her retirement assets, so she could benefit from them in the future.”
Strategic Retirement Option
The experience worked out so well for his parents that John III and Sarah got a reverse mortgage on their home four years ago when they were both 63. The reverse mortgage allowed them to pay off credit card debt. ‘Four years later, I still don’t have any credit card debt,” says John.
The Leers recently refinanced, which allowed them to lower their interest rate from 4.1 percent to 2.7 percent, and obtain an additional $35,000 in a line of credit to draw on when needed. By refinancing, they were also able to reduce the ongoing mortgage insurance premium they paid annually on the outstanding loan balance from 1.25 percent to 0.5 percent. The net result is that their loan balance is growing at a much slower rate compared to the original loan.
“The reverse mortgage allowed us to pay off our credit card debt without taking money out of savings or our retirement,” says John. “We recently bought some property, so I am using funds from the reverse mortgage each month to cover my obligations.”
Fifteen years after he started selling reverse mortgages for Wells Fargo (which exited the reverse mortgage business in 2011), John is still originating them, now for MidWestOne Bank.
“Reverse mortgages provide a strategic retirement option for many older homeowners,” says John. “Reverse mortgages allow people to pay for in-home care and other services that allow them to age in place or provide an alternative to selling retirement assets after a market downturn. While a reverse mortgage isn’t for everyone, it can provide the financial security that many people are looking for in retirement.”