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Case Study: How a Reverse Mortgage Helped One Woman Reclaim Her Dream of Traveling

March 13, 2016 by HECM Pro

Pine Tree and AuroraNancy, 65, loved to travel and has been on many exciting trips throughout north and central America. During her working years she dreamed of a time in her life when she would be able to retire and really pursue her passion for exploring new places.

Unfortunately, since retiring, she hasn’t been able to do many of the fun trips she’d been planning because of $35,000 in credit card bills that had accumulated from caring for her mother and doing some needed projects around the house.

Though her home, which was worth $365,000, was free and clear and she had a decent income from Social Security and a pension, pretty much everything coming in was going out because of $800 worth of minimum payments for the credit cards. She was making little to no progress on paying them off because of the high interest rates. She had zero wiggle room in the monthly budget and no savings to fall back on to cover future unexpected expenses.

This not only stressed her out, it bummed her out because she didn’t have the money to pursue her passion for travel.

Nancy was a little wary of the reverse mortgage at first, but once she learned how it worked and saw how it could substantially improve her finances, she warmed up to it quickly. Not only would it allow her to eliminate her credit card payments, it would also provide a healthy reserve fund that could cover unexpected expenses. This gave her a huge sense of relief and she began to get excited about finally being able to travel again. She realized that just the elimination of her credit card payments would enable her to take several nice trips every year. For her, this was huge.

Nancy’s goal with the reverse mortgage was to eliminate 100% of her credit card debt and set up a reserve/retirement fund she could tap in the future to cover emergency expenses or any other bills that might come up.

The following is a summary of the numbers we’re working with so far:

Scenario Summary
Home Value: $365,000
Mortgage Balance: $0.00
Mortgage Payment: $0.00

If Nancy had a mortgage relatively low mortgage, the reverse mortgage first would have paid it off and eliminated the payment for as long as she lives in the home. But the fact that she doesn’t owe a mortgage balance means she has more of the proceeds available for use at her discretion.

The Results: More Fun and Financial Security

Based on her age and a home value of $365,000, Nancy qualified for a pool of cash worth about $190,000 after covering closing costs. Of that, she planned to take $35,000 at closing to pay off all of her credit cards and leave the remaining $155,000 on a line of credit that will grow larger for her over time.

Let’s summarize what the reverse mortgage accomplished for Nancy:

  • Elimination of $35,000 in credit card balances. The credit cards had become a major headache for Nancy, so getting rid of them was a huge relief. It also freed up $800 worth of cash per month that she could now use to travel or upgrade her home.
  • Creation of $155,000 emergency/retirement fund. Instead of having zero money in the bank for the future, Nancy now had a tax-free $155,000 line of credit. In one shot, she went from zero to 6 figures in liquid retirement savings. Even better, whatever money was available on the line of credit would automatically grow and compound larger over time with no limit. Nancy didn’t feel like she’d need to tap that money anytime soon, so she planned to leave as much of it in the line of credit as possible to maximize the growth. Assuming she receives a 5% growth rate, which is very reasonable for today’s market, the line of credit could grow to over $240,000 after ten years. After twenty years, it could be worth as much as $411,000. Nancy effectively turned a portion of her equity into a tax-free retirement account that automatically grows larger over time.

Here’s the bottom line: Nancy now has more cash to have fun with on a monthly basis and greater long-term financial security.

Reclaiming a Retirement Dream

Nancy was so excited when the reverse mortgage was finally funded and she was able to pay off the bills that had been such a headache for so long. She was especially looking forward to finally taking her dream trip – a cruise through the Alaskan inside passage. This was something that would never have been possible without the reverse mortgage.

That’s why the reverse mortgage is such a great product. It’s not just another home loan, it’s a retirement vehicle that allows people to live their dreams.

Case studies are based on real life scenarios but names, ages, locations, and other details have been changed to protect client confidentiality.