Never Make Another Mortgage Payment

Steve McDonald By Steve McDonald, Bond Strategist, The Oxford Club

Two-Minute Retirement Solution

Editor’s Note: Yesterday, Steve revealed why seniors need “divine intervention” when it comes to real estate. (If you missed it, click here to learn about the “St. Joseph house seller” miracle.)

In today’s issue, Steve takes senior real estate woes into his own hands…

– Rachel Gearhart, Managing Editor


The debt baby boomers’ are carrying into retirement is crushing them. And most of it is mortgage debt.

Many of us took on 30-year mortgages in our late 40s, 50s and even in our 60s. And they are huge drags on our monthly cash flows – and will be for many years.

Payments of $1,200 per month are not unusual, and they don’t just go away. For folks who rely on Social Security and whatever they managed to save, a mortgage payment can really put the squeeze on them.

If we could eliminate monthly mortgage payments, we could free up a lot of cash.

Well, there may finally be a solution to this cash flow crunch, and it can be as simple as using the equity in your home to pay off the remaining mortgage.

I know this sounds a little screwy, but hear me out…

Friends of mine, both experienced realtors, just purchased a home with the proceeds from the sale of their previous home. However, they paid only 50% of the purchase price. The other 50% was funded by taking a reverse mortgage on the equity in the new home.

They eliminated their previous mortgage when they sold, and despite paying only 50% of the asking price for the new house, they will never have a payment due on it. Never!

I don’t know the exact numbers, but let’s say they moved in with $150,000 down on a $300,000 purchase. But, unlike every other mortgage situation, there are no monthly payments on the interest or principal – ever!

Interest does accumulate on the amount owed, but the balance isn’t due until you sell your home or pass away.


In those eventualities, one of two things can happen… Either the home is taken over by the mortgage holder and sold to satisfy the amount due, or your heirs can pay off the balance and keep the home.

The interesting part of this equation is that if your home appreciates before you pass or sell – which is a reasonable expectation – it could offset some or all of the interest costs.

The positives are obvious. You own your home, you don’t have a monthly payment due, your monthly cash flow increases by a large amount, and you can never lose that home.

That’s important. No matter what happens, with a reverse mortgage, you will always have a place to live – but you never have a mortgage payment.

That said, this isn’t a complete free ride.

Your costs include closing costs (they can be high), real estate taxes, insurance and maintenance.

The negative side is that it could eat into your heirs’ inheritances. The interest and principal have to be paid at some point, and those could reduce what you leave behind.

But if you find your monthly mortgage expense has put you between a rock and a hard place, and you have some equity to work with, this could be a lifesaver.

Half-price homes, an increase in your monthly cash flow – with no monthly payment – and as long as you keep up with the taxes and insurance, there’s no chance of ever losing your home.

Check with several lenders to ensure that you’re getting a good deal on the closing costs and the interest rate. And it wouldn’t hurt to have an attorney look over the deal before you finalize it.

No mortgage payment and you can’t lose your home? It’s hard to argue with this one.

Good investing,

Steve

Please Note: Reverse mortgages aren’t right for everyone. Before you enter into one, do your research. To learn more about the pros and cons of reverse mortgages, click here.