House Rich, Cash Poor? How a Reverse Mortgage might turn your life around
Recently, I sat down with Cheryl McCarthy, a long-time Alameda resident, and a fellow Alameda Senior Transitions network member, to create an ongoing series to discuss reverse mortgages, which are now known as FHA-Insured HECMs, or Home Equity Conversion Mortgages.
Whether you are thinking of selling and relocating to a new living situation or have decided to age in place, we have the experience and knowledge you need. Meet the team on our network page.
About Cheryl McCarthy
Cheryl has been helping Bay Area customers for over 30 years in banking and finance. For the last 7 years she has been working for Mutual of Omaha Reverse Mortgage, and now exclusively provides FHA-Insured Home Equity Conversion Mortgages (HECMs) and Jumbo Reverse Mortgages to clients aged 62 and older which can be used to refinance an existing home and even purchase a new home.
Cheryl has a direct, yet warm manner and enjoys explaining how reverse mortgages work and the options they can provide for you. She’s always collaborating and listening to find the best solution for her clients.
Cheryl McCarthy, Reverse Mortgage Advisor | NMLS#662082 | Mutual of Omaha Mortgage NMLS#1025894| Licensed by The Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act
How a reverse mortgage can benefit you
In this series, Cheryl will give real-world examples of how this product really impacts someone’s life, who seeks out her help, talks about the benefits of this financial tool, informs you about what rules govern this financial product, and walks you through the old myths and fears from a pre-regulated housing marketplace. * All names of her clients are fictional to protect their identity.
Homeowner stays with a HECM
We started our conversation with an example of how a HECM (aka, reverse mortgage) allowed someone to stay in their home. A quick primer on reverse mortgage details & lingo before we get back to our example:
one borrower has to be 62
a spouse can be younger than 62
would be considered a non-borrowing spouse (NBS)
FHA has protections for an NBS
Cheryl said, “I’m working with Fred, who is retired. Sadly, his wife has dementia and he’s the only caregiver. In addition to everything else he has to deal with, he still has a large mortgage payment of about $2500 per month to worry about. The combination of the mortgage payment and taking care of his wife at home was stressing him out. Fred felt overwhelmed and needed some help. Luckily, he has a power of attorney (POA) that allows him to act in the best interests of his wife and himself. After looking at his situation, we determined that the best solution meant creating both a reverse mortgage, which will eliminate his mortgage payment, and giving him a line of credit that he can use for whatever he needs. Right now his biggest expenses are for her in-home care, but he’ll have some flexibility for whatever the future may bring too.”
Who is a typical client and has it changed?
“Long before the pandemic, my average customer tended to be in their late 70s to early 80s. Then in about 2017, I started seeing baby boomers begin to retire. Boomers, in my experience, tend not to be risk or debt averse. In fact, many usually go into retirement with a large mortgage payment ‘which will kill your retirement.’ After receiving their reverse mortgage, they pay off their large mortgage, and more than likely a line of credit (aka, HELOC - Home Equity Line of Credit). Then they can use their retirement income for whatever they need. I also have other baby boomer clients that are retiring and setting up a line of credit with their reverse mortgage, so they can use it in conjunction with their investments.”
Reverse mortgage as a wealth management tool?
Cheryl referred me to this article from the New York Times to better understand how a reverse mortgage can also be used as a wealth management tool. Apparently, the thinking goes that the earlier you set one up for yourself, the more likely you are to be able to take maximum advantage of it. The article focuses on the benefits to younger retirees in their 60s and early 70s. “The best use of this tool is to provide and supplement income during retirement,” said Craig Lemoine, the director of the financial planning program at the University of Illinois, Urbana-Champaign. “A younger retiree can stay in the house while turning equity into an income stream.”
This is something we’ll explore in more detail in another blog post, but for now, think of it as one more option if you’re considering getting a reverse mortgage.
What are the current reverse mortgage (HECM) qualifications?
The borrower must be at least 62 years old
The home must be the borrower’s primary residence
The amount that can be lent is based on the appraised value and rates of interest
In our next installment, Cheryl and I discuss Jumbo Reverse Mortgages (minimum age is 55 - no protections for a spouse less than 55) and using a HECM (reverse mortgage) for purchase, plus she dispels old myths and fears about getting a reverse mortgage.
If you have questions regarding reverse mortgages, please contact Cheryl:
email: cmccarthy@mutualmortgage.com
phone: 510-507-5616
website: alamedareversemortgage.com
Until next time!