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I was introduced to the homeowners by the branch manager of their bank who I have a referral relationship with.  The homeowners applied for a traditional home equity line of credit with the bank but were denied due to insufficient income.  The bank branch manager suggested they talk to me about a reverse mortgage.

The homeowners are long time small business owners in their 70’s, however they can no longer operate the business due to the physical demands of the business.  In addition, they have ongoing medical issues that make working impractical.  Their sole source of income is now social security income, and they have no meaningful savings.

Their financial position is as follows:

1. They own a home with a value of approximately $500,000, a mortgage of approximately $140,000 and net equity position of $360,000.
2. The mortgage payment (principal and interest) is $1,400 a month and $16,800 per year.
3. The homeowners owe approximately $20,000 in credit card debt with a minimum payment of $450 per month. The minimum payment only covers only interest).
4. The homeowners have an outstanding IRS debt of $15,000 that they are paying off monthly.
5. Their home needs several critical improvements.

At the time the homeowners contacted me they could not meet their current monthly obligations and had been using their credit cards to make up the difference.  They are close to maxing out their credit card balances and are likely a few months away from either not being able to pay their monthly credit card payment, mortgage payment or both.

Once it was determined that the homeowners would qualify for a reverse mortgage, it was critical to move forward as quickly as possible to get the mortgage approved and closed while the homeowners still had good credit history with no late payments.  Due to their financial situation, they were concerned that they would not be able to continue to make all their monthly payments in a timely manner much longer.  If they miss a payment their credit scores will decline and jeopardize their ability to obtain a reverse mortgage.

After several challenges, the borrowers were able to obtain the reverse mortgage with the following results:

1. Payoff the current mortgage and eliminate the mortgage payment. Saving the borrower $1,400 a month and $16,800 a year.
2. Payoff their outstanding credit card debt of $20,000. Saving $400 a month and $4,800 a year
3. The ability to make some of the necessary critical home improvements.
4. They will continue to pay off the IRS debt monthly.

After the reverse mortgage the homeowners’ financial position improved substantially, with the following highlights:

1. They freed up $21,600 per year which doubled their monthly cash flow.
2. They can live in the house without a mortgage payment for as long as they live or until they decide to move and sell it.
3. If they remain in the home for the next 10 years (which is how long their mortgage has left) they will save approximately $216,000 in monthly mortgage payments and the money saved can be used for other purposes.
4. They retain ownership of the home until they sell it.
5. They retain all future appreciation, and the remaining equity will be available to them or their beneficiaries when they sell the home or pass away.

More importantly the financial stress the homeowners were subject to is eliminated/reduced, which will provide substantial mental and physical health benefits to the homeowners since they are no longer in danger of losing their largest asset.

They are happy and relieved that they were able to obtain the reverse mortgage.