A Simple Debt Solution for Retirees: Lower Monthly Payments Using Reverse Mortgages
In California, many older homeowners are faced with the challenge of monthly payments on mortgage, credit card or auto loan debts while on a fixed income. There is a solution which is gaining in popularity and can offer many an option through reverse mortgages. These specialized types of home loans allow seniors to use some of their home equity to receive funds, helping them consolidate debts into the reverse mortgage and reduce overall monthly financial payments. On this page, we will explore several strategies on how reverse mortgages can provide a practical and effective way for Californian retirees to increase their cashflow and enjoy a more secure retirement. These options can be a game-changer for lowering monthly payments and helping create a sense of financial freedom to truly enjoy retirement with less stress about money.
I hope you find value in the strategies mapped out on this page. If you would find any of them interesting I would love to have a conversation with you personally.
Sincerely, John Correll, CRMP
(888) 603-1550 | (619) 294-9820
3 Powerful Strategies to Reduce Monthly Payments Utilizing a Reverse Mortgage
California Reverse Mortgage Strategy #1: Refinance Into a Reverse
Refinance a Traditional Mortgage Balance Into a Reverse Mortgage
to Eliminate the Monthly Mortgage Payment*
How this works: Let's say Sue and Bob are age 75 and own a $900,000 home in San Diego but still owe a $250,000 mortgage balance which has a monthly payment of $1,950 per month. (the payment includes about $500 per month in the escrow account to cover property taxes and homeowners insurance).
Solution: Sue and Bob could substantially lower their monthly bills by refinancing their mortgage balance into a reverse mortgage which unlike their current mortgage, the reverse mortgage has no monthly mortgage payment requirement. (The borrower does however still have to pay the ongoing property taxes, homeowners insurance premiums, hoa dues (if any) and home maintenance.)
As a bonus, in addition to being able to get rid of the monthly mortgage payment, after refinancing into the reverse mortgage they would have a access to an estimated $120,000 additional proceeds that they could use to draw some money at closing and create a line-of-credit to draw on in the future as needed.
SCENARIO EXAMPLE: Refinance Into A Reverse Mortgage
Sue and Bob's Current Situation Today (before a reverse mortgage):
$1,950 monthly mortgage payment
(includes $500/mo escrow for taxes and insurance)
TOTAL MONTHLY PAYMENTS TODAY: $1,950 per month
Proposed Solution for Sue and Bob Using a Reverse Mortgage:
$0 monthly mortgage payment (new reverse mortgage) *
$500 per month for ongoing property taxes and homeowner's insurance
Establish a new Line-of-Credit for future draws: $120,000 **
TOTAL MONTHLY PAYMENTS AFTER A REVERSE MORTGAGE: $500 per month
RESULT:
This Strategy would allow Sue and Bob to:
- lower their monthly payments by $1,450 per month
- provide them access to an estimated additional $120,000 in proceeds to spend any way they wish
* For the loan to remain in good standing, the borrower(s) must continue to occupy the home as primary residence, plus pay ongoing property taxes, homeowners insurance premiums, hoa dues (if any), plus the maintenance expenses on the home.
** Line of credit calculation may vary with current market conditions and program changes - subject to first year distribution limits.
California Reverse Mortgage Strategy #2: Consolidate Credit Cards
Consolidate Credit Card Debts, Auto Loans or other debts into a Reverse Mortgage
to Lower Total Monthly Payments *
How this works: Let's say Ed is age 72 and owns a $850,000 home with no mortgage (free & clear). However Ed has a $20,000 car loan with a $450 monthly payment and 6 credit cards which have total balances of $40,000 with combined monthly payments of $750. The property taxes and homeowners insurance on his home run about $250 per month which Ed pays himself.
Solution: Ed could secure a reverse mortgage to lower his payments substantially. Unlike his car and credit card debts, a reverse mortgage has no monthly mortgage payment required. (The borrower does however still have to pay the ongoing property taxes, homeowners insurance premiums, hoa dues (if any) and home maintenance.) If Ed took a draw at closing of $60,000 he could use that money payoff his car and credit card debts and consolidate those balances into the new reverse mortgage.
In addition to getting rid of the monthly payments on his credit cards and car loan, after refinancing into the reverse mortgage he they would have a access to an estimated $267,000 additional proceeds that he could setup in line-of-credit to draw on as needed over time or setup a monthly schedule to receive payments to him each month to help supplement his income.
SCENARIO EXAMPLE: Consolidate Credit Card Debt Into A Reverse Mortgage
Ed's Current Situation Today (before a reverse mortgage):
$0 monthly mortgage payment (home owned free & clear - no mortgage)
$250 per month for property taxes and homeowners insurance
$450 per month on Auto Loan (balance owed $20,000)
$750 per month on 6 credit cards (balances owed $40,000)
TOTAL MONTHLY PAYMENTS TODAY: $1,450 per month
Proposed Solution for Ed Using a Reverse Mortgage:
$0 monthly mortgage payment (new reverse mortgage) *
$250 per month for ongoing property taxes and homeowner's insurance
$0 per month (now that car and credit cards are consolidated into the reverse)
Establish a new Line-of-Credit for future draws: $267,000 **
TOTAL MONTHLY PAYMENTS AFTER A REVERSE MORTGAGE: $250 per month
RESULT:
This Strategy would allow Ed to:
- lower his monthly payments by $1,200 per month
- provide him access to an estimated additional $267,000 in proceeds to spend any way he wants
* For the loan to remain in good standing, the borrower(s) must continue to occupy the home as primary residence, plus pay ongoing property taxes, homeowners insurance premiums, hoa dues (if any), plus the maintenance expenses on the home.
** Line of credit calculation may vary with current market conditions and program changes - subject to first year distribution limits.
California Reverse Mortgage Strategy #3: Property Charge Set-Aside
Create a Set-Aside Account and Allow the New Reverse Mortgage to Pay Directly Ongoing
Property Taxes & Homeowners Insurance Bills to Lower Total Monthly Payments **
How this works: Let's say Martha is age 80 and owns a $1,000,000 home with no mortgage (free & clear). Martha has no debts but finds that on a fixed income paying her property taxes and homeowners insurance bills to be a challenge. Her property taxes run $8,500 per year and her homeowners insurance is $2,000. That means her property taxes and insurance expenses run $875 per month.
LESA - Lifetime Expectancy Set Aside Option. When setting up a reverse mortgage there is a special option called a LESA which stands for lifetime expectancy set aside. This works similar to a tax/insurance escrow on a regular mortgage but with the advantage of no monthly mortgage payments.* The reverse mortgage at time of closing is funded with the set-aside account which is designed to pay future and ongoing property taxes generally up until age 90. This means as long as there are funds remaining in the set-aside account, Martha would not have to pay the property taxes and insurance herself each year - the reverse mortgage would pay those for her on her behalf out of the LESA funds. **
Solution: Martha could secure a reverse mortgage with a LESA which pays the ongoing property taxes/insurance bills directly for her and would lower her housing expenses substantially. A reverse mortgage has no monthly mortgage payment required. While ultimately the borrower is responsible to pay the ongoing property charges likes property taxes, homeowner's insurance hoa dues (if any) and home maintenance - the LESA is designed to cover those for the borrower until the LESA run out - generally projected to age 90 which is why its called a Lifetime Expectancy Set Aside.
In addition to getting rid of the $875 monthly payments on her property charges, after refinancing into the reverse mortgage she they would have a access to an estimated $372,000 additional proceeds that she could setup in line-of-credit to draw on as needed over time or setup a monthly schedule to receive payments to her each month to help supplement her income.
SCENARIO EXAMPLE: Reverse With Property Tax/Insurance Set-Aside Option **
Martha's Current Situation Today (before a reverse mortgage):
$0 monthly mortgage payment (home owned free & clear - no mortgage)
$875 per month for property taxes and homeowners insurance
No other credit card or loan debts
TOTAL MONTHLY PAYMENTS TODAY: $875 per month
Proposed Solution for Martha Using a Reverse Mortgage:
$0 monthly mortgage payment (new reverse mortgage) *
$0 per month for ongoing property taxes and homeowner's insurance (using LESA set-aside option)
No other credit card or loan debts
Establish a new Line-of-Credit for future draws: $372,000 ***
TOTAL MONTHLY PAYMENTS AFTER A REVERSE MORTGAGE: $0 per month
RESULT:
This Strategy would allow Martha to:
- lower her monthly payments by $875 per month
- provide her access to an estimated additional $372,000 in proceeds to spend any way she wants
* For the loan to remain in good standing, the borrower(s) must continue to occupy the home as primary residence, plus pay ongoing property taxes, homeowners insurance premiums, hoa dues (if any), plus the maintenance expenses on the home.
** LESA stands for Lifetime Expectancy Set-Aside. A set aside can be chosen at time of loan closing or may be imposed by the underwriter. Not all reverse mortgages have a LESA. If a LESA is established, the property taxes & homeowners insurance are still the responsibility of the borrower to keep current. As long as there are funds in the LESA - the reverse mortgage will continue to pay them on behalf of the borrower. The LESA may be projected for borrowers lifetime (generally up to age 90) however if funds run out of the LESA the property charges will need to be paid directly by borrower to keep loan current and in good standing.
** Line of credit calculation may vary with current market conditions and program changes - subject to first year distribution limits.
Combine Any Of The Above Strategies To Maximize What a Reverse Mortgage Can Do For You
Thank you for spending some time on our reverse mortgage website.
As the owner, I truly appreciate your visit and hope you found the information you were looking for. I am a local San Diego CRMP and I am committed to provide an educational resource to those in California seeking information about reverse mortgages. As you can see there are a number of strategies available and I am are here to assist you in making informed decisions about your financial future and the role a reverse mortgage might play in that future.
I truly believe information is power. And the best way to get the reverse mortgage conversation started is call or request an online quote. Once again, thank you for taking the time to explore our website, and we hope to be of service to you in the future. Have a wonderful day!
-John Correll, CRMP
Certified Reverse Mortgage Professional
(888) 603-1550 | (619) 294-9820
San Diego Reverse Mortgage Company
Serving the Reverse Mortgage Needs of the Entire Great State of California
