SHOULD I GET A GUARANTEED INCOME FROM THE EQUITY IN MY HOUSE, WITH NO RISK, AND
SPEND THE MONEY TO LIVE A BETTER LIFE IN RETIREMENT?
Just some "quick notes", that might spur one's thinking...
Money, and having enough of it, is often a source of great fear. And that is entirely understandable, since it entwines with our thoughts about survival in this world. However, as discussed elsewhere, we inflate the threat into what is unrealistic. Sure, we might just have "enough" to survive, but we seldom appreciate that or relax into it, as we are into the "I must have more to be ok" mode of thinking.
And, when we are in fear our higher brain actually ceases to think at the level that it is capable of. Toss into that the "clenching" of the mental fist as it freezes up in fear thoughts and in a mental "box" of sorts, where we lose all perspective. (It is interesting how, if we were to objectively advise another, we can come up with all sorts of great solutions about the very same dilemma!)
So, the story is about this older couple, in their seventies, feeling so restricted financially that they were even considering renting out a room, despite the hassle and invasion of privacy and interruption of their lives. But they needed about $500 more per month to feel "OK" about their finances. Also, if they did not have more cash flow, he would have to take more money out of retirement and pay more taxes.
However, they were sitting on a field of diamonds, so to speak, where they were making payments at the same rate as they were on an original loan but the mortgage was very low (about $70K) on a $700,000+ home.
WHAT COULD AND SHOULD THEY DO?
It would not make sense for them to make themselves miserable in order to preserve their estate for the kids.
Refinance
They could refinance their current mortgage to lower the payments, though the interest rate might not be lower.
Get income "for life", guaranteed
They could do a "reverse mortgage", so that they would have no payment to make at all plus they would get a guaranteed, no risk monthly income for as long as they live. So, the outflow would be lessened by not having to make a house payment any more, plus they would receive a fixed amount per month, again as long as they lived. [Note the "catch": if they had to move out of it, the payments would stop at some point - but then they would also have the remaining equity. Also the interest rates and costs are a bit higher on a reverse mortgage than a regular one - but, I think, they would be well worth it.]
They could then enjoy the wealth that they build up and be able to expand out into living life a bit larger.
The reverse mortgage is definitely something I would be delighted to do if I were in that same situation. HUD regulates this and requires each person to first go through an mandatory reverse mortgage counseling before allowing the loan. (HUD = Housing And Urban Development) ["Income for life" is often misstated, as it will not continue past the time both partners have "moved out of the home" for a year, such as being in a nursing facility and unable to return - but you have to be in pretty bad shape to not be able to return home for a month or two a year. Use a good financial advisor to help you navigate your ship through these waters and leave extra "margins" for flexibility.]
THINKING EVEN FURTHER OUT OF THE BOX
But there are also other options.
Let's see now....
We need money.
Who has money?
Oh, her sister and his brother have alot.
But we can't ask for handouts.
But...
How about if we set it up to have them lend the money secured against the house, so they would be sure to get it from our estate with no hassle?
How much could I live on reasonably then?
I could easily draw out $10,000 per year, cash money with no taxes, to spend.
How much would that change my life?
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How much money could we pull out per year if we allowed up to $500,000 of the equity to be taken out? (Of course, the house value would probably also go up meanwhile.) Let's pull it out over 30 years, so we could live to over 100 years old. Assume an average interest rate of 5%.
That's 17,765/year.
Wouldn't that make a difference in how we can live???...
And the interesting thing is that, if we use a reverse mortgage, we can keep on getting the money even if we live longer, as it is guaranteed for a life time - and isn't that a great hedge against "living too long" and outlasting your money. Great security!!!!
(You do not make cash payments for interest. There is no payments you make, period.)
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Keeping all of one's money locked up in the equity of a house is a bit like saving sex until our older years...
RESOURCES
homeequityadvisors.org
reversemortgage.org - Compute how much you could get. A home worth $700,000 with a $70,000 mortgage would pay off the mortgage, so there are no payments to make, ever, plus provide income as long as you live in the house of about $1,762.15 per month ($21,000+ per year).
rmc.ibisreverse.com
