In the ‘80s and ’90s (I realize that was about a million years ago to many of you), there was a musician who had his share of the limelight and went by the name of Adam Ant (I’m about 175% sure he wasn’t born with that name). At any rate, Mr. Ant wrote his own music and lyrics, and he was well known for having lyrics that made no sense – in fact, in many instances, he went out of his way to MAKE SURE they didn’t make any sense. His 1985 hit “Vive Le Rock” is one such example with these opening lyrics: “Bang bang, you’re dead / Did not, did too / Stop diddy-bopping buddy / Bouncing Betty on you.” Many people think the mortgage industry pulled an Adam Ant when it introduced Reverse Mortgages back in 1989 – the words were all in English, but the way they were arranged on the page just didn’t make any sense.
The easiest way to appreciate a Reverse Mortgage is to STOP thinking about a mortgage as a means to an end: owning your home outright with no further monthly payments. Instead, you need to think of your home as a vehicle that keeps you moving along UNTIL THE END (quite literally). And remember, a Reverse Mortgage not only applies to refinancing – it enables people to BUY a home.
Rather than boring you with the ins and outs of a Reverse Mortgage, let me give you a practical exercise to run though in your head. For most people in their golden years, medical care is their biggest expense. You’re retired, your house is paid off, and your source of income is your investment account. If managed properly, the funds in that account will take care of your needs and wants until you pass away. However, if you have medical needs with accompanying expenses that weren’t factored in when you set up your investment strategy, that account is going to be depleted a lot faster – and while your house is paid off, and you have no monthly mortgage payment, your house isn’t really “doing” anything for you. Conversely, with a Reverse Mortgage, you can get paid TO LIVE in your home, and the money you make from your Reverse Mortgage can be added regularly to your investment strategy and/or cover those unexpected medical expenses – either way, your investment account stays a lot healthier, right? Also, with a Reverse Mortgage in place, you stay in your home as long as you wish.
At this point, you’re probably asking, “That’s fine and dandy for people who are over 62 years of age, but what about someone young who’s looking to buy her first house?” I’m glad you asked, and the answer is SIMPLE: the younger you start, the more likely you’ll have a home in your golden years that will have a boatload of equity that will enhance your retirement and investment strategies. Let me show you.
Making only $25K/year, a young person could qualify for a duplex that costs $200K by renting out the one side for just $650/month and living in the other half (for at least a year). This could be done through an FHA loan, so the down payment would only need to be $7K (3.5% of the purchase price), and that $7K could be a gift. A person working an hourly job at $12.50/hour, 40 hours/week (with two weeks off for vacation – if their employer didn’t give them paid vacation) earns $25K/yr. The average starting salary for a college graduate is about double that at $50K. My point: starting now IS POSSIBLE (and HIGHLY recommended), and the sooner you start, the faster you can “trade up” to your dream house and eventually that last house that’s going to take care of you.
Let me close this with a set of lyrics that make a little more sense – they’re from Billy Joel: “Hot funk, cool punk, even if it’s old junk / It’s still rock and roll to me.” Translation: age and style don’t matter – it’s all about the equity!