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The Golden Years, In Reverse

What many people have now — house, lifestyle, neighborhood, friends, church, clubs — is exactly what they’d like to keep.

Unfortunately, many older folks simply don’t know how or where to look to find the funds that would allow them to maintain the status quo. The immediate need for seniors now is supplementing the income to provide the standard of living they desire.

In the past, the typical reverse mortgage was taken out by a single woman, 75, who needed funds to fix up her home so she could comfortably age in place. Reverse mortgages now are also being used to support a more well-to-do routine.

For example, Frank Williams, 77, and his wife, Carla, own 35 weeks of timeshares each year in five different timeshare systems. They work points, bonus time and favored status like some people work airline miles. They know how to successfully maneuver through each different organization to gain the maximum overall benefit. They are actively filling in their timeshare schedule into calendar year 2022. Now that’s organization!

The Williamses took out a reverse mortgage on their principal residence in New Mexico not to buy more timeshare weeks, but to make sure they didn’t have to skimp getting to them, or cut back on activities once they arrived.

“I know a lot of people are skeptical about reverse mortgages, but it worked for us,” Frank said. “Our friends want to leave everything they have to their kids, and that’s OK. But we’re not primed to punish our kids by spending all of our money. Our kids are doing fine — they own their own homes, and would rather see us enjoy the rest of our lives.”

Consumers can choose how to receive the money from a reverse mortgage. The options include a lump sum, fixed monthly payments (for life), a line of credit, or a combination of the above. The most popular option, chosen by more than 60 percent of borrowers, is the line of credit, which allows consumers to draw on the loan proceeds at any time.

The size of the reverse mortgage depends on age at application, the loan type and home value. In general, the older the consumer and the more valuable the home (and the less amount owed), the larger the reverse mortgage.

A reverse mortgage can be viewed similar to a home equity loan but without a monthly payment. Owners do not repay the loan as long as the home remains the principal residence. Income and credit rating are not considered when qualifying for the loan. There is no requirement that owners requalify during the term of the reverse mortgage, yet property taxes and home insurance must remain current.

With a home equity loan, borrowers must make regular payments to repay the loan. These payments begin as soon as the loan is originated. To qualify for such a loan, the borrower must earn a monthly income great enough to make those payments. If payments are not made, the lender can foreclose, forcing the sale of the home.

The Williamses took out a home equity loan to do a major remodel on their home. Frank repaid most of the debt by selling some lackluster bonds and then paid off the remainder with a reverse mortgage from Golden Gateway Financial. The couple also receives $1,500 a month, tax-free, for the next 20 years from funds remaining in the reverse mortgage.

“I had some assets that I didn’t really want to sell because I thought they would rebound and do quite well,” Frank said. “So, I look at the reverse mortgage as a way of buying us some time for those assets to come back. The bonds that I did sell were not yielding anything close to the interest rate we were paying on the home equity loan, so I sold them and paid it down.”

In winter, the Williamses spend up to five consecutive weeks in the same timeshare unit on the Big Island of Hawaii. They then will hop over to Kauai for a couple of weeks and then maybe hit Palm Springs and San Diego in California before drifting back home to New Mexico. Northern Idaho is a favorite summer spotfor the couple.

But why would they want to pay $22,000-$23,000 in annual timeshare fees rather than simply plunk that down on a mortgage for a second home?

“I have no delusions about timesharing being a good investment. They’re a lousy investment,” Frank said. “But we enjoy doing what we do, going where we go. We have no regrets and wouldn’t change anything.”