Outside the Box

Reverse Mortgages Reflect Outside-The-Box Thinking

By Mark Schumacher, NMLS ID 519754, Mutual of Omaha Mortgage, Inc., NMLS ID 1025894

I wish I could say my creative juices are frequently flowing. They are not. Maybe that’s why there are a few times in my life that stand out in my mind as my more creative moments. There’s one in particular that I want to share to help make a point.

I was in college. It was an absolutely beautiful day. I walked into Williams Hall for my early-afternoon class and found a note on the door that class was cancelled. Hallelujah! I walked outside to the quad and sat down in the grass. The beauty of the day, the soft green grass, the next hour of my life freed to my whims, and in a moment of inspiration I thought – I want to write a poem!

To be clear, there was no birthday, anniversary, or holiday card this was going on. It was just for me.  Seriously – a poem. This from the guy who won the Outstanding Young Accountant award in high school.

What inspired me was a recent revelation I had from my classes and the case studies we’d often review. Whether individuals or organizations, there’s issues, difficulties, or challenges we face. My revelation was that breaking the issue down to its most basic point was a huge help in coming up with multiple viable solutions. From there I can pick the best solution for me. As an example, if my car breaks down and I’m thinking my basic need is I’ve got to fix my car, I’ll be ignoring many possible solutions that could address my true basic need which is I need to get from here to there (and likely back again).  I’ve found this to be so helpful with all kinds of problem solving. It gets me outside the box I create for myself when I misdiagnose the core issue.

Retirees have no shortage of issues to address. All About Seniors might not exist if it weren’t so.  Solving the money issue can go a long way for solving many other issues as well. Figuring out where to get cash to pay for stuff can take some creativity – outside the box thinking.

A house offers many different opportunities for generating cash: sell it, rent it, Airbnb it, talk to friends and family – they might want to invest in it. Aside from any alternative equity options, there’s borrowing on the house. Home equity loans, traditional mortgages, and reverse mortgages are all ways of doing this that allow the homeowner to maintain ownership of their home.

What makes a reverse mortgage unique is the flexibility in the repayment terms; the fact you don’t have to pay off the interest that accrues each month. That means extra cash for homeowners. It’s for homeowners that place a higher priority on having access to cash than on building equity. For these folks, having a paid-for home looks more like a big pot of money that’s buried in the ground that they don’t have access to until they sell. But what about those that don’t want to sell?

The thing about a paid-for home is the home is never done being paid for. A home continues consuming cash long after the mortgage-burning embers have cooled. Property tax, homeowner’s insurance, homeowner’s association perhaps. And then there’s the upkeep. Holy moly the upkeep!

Rather than the traditional “gotta have a paid-for home” thinking, maybe a better end goal is financial security – having the money to pay for stuff. There’s plenty of homeowners that own their home free-and-clear and yet have no money, no cash. They don’t feel like their home equity is working for them.

There are different ways the owner can access the Reverse money, but the 1st thing that happens when the loan is consummated is any existing liens are satisfied. If the borrower chooses to not pay off the interest then it’s added to the loan balance to be paid back later; typically when the borrower dies, sells, or moves. If the borrower passes away prior to paying the loan back, then the heirs inherit the house and decide if they want to keep the house or sell it to get the equity out of it. If they want to keep it then they typically refinance the house to pay back what’s owed.

There’s even a cousin to the reverse mortgage that’s for buying a home. I like to call it the “cash-buyer down payment assistance program” – comes in handy with price points being what they are.

Roses are red, violets are blue. Home is a treasure to enjoy, this is true.

Thoughtfully consider the decisions you make. You may find your castle is also your bank.

To speak with a South Carolina reverse mortgage specialist, visit mutualreverse.com/lo/mark-schumacher.