In 2009 my grandmother in law was a 91 year old widow. She had 7 children, 19 grandchildren and 16 great grandchildren. She loved family parties, playing golf and reading.
It was at this time, however, that she began to experience financial stress.
Her house was worth $500,000, but she was having trouble paying the bills, including her mortgage payment on a $275,000 mortgage. Up until that time she had good income from an investment property, but when that property was refinanced, she lost that stream of income and her monthly budget went into the red.
This family party involved cleaning up Grandma’s yard. We had fun together no matter what we did.
Her Decision to Get a Reverse Mortgage
My grandmother explored other investment options, but could not find anything to replace the kind of income she had been receiving.
So, to lower her expenses and give herself more flexibility she opted to get an adjustable rate reverse mortgage. The reverse mortgage replaced her $275,000 mortgage and put in place a $120,000 HECM line of credit that grew over time.
This gave her the option of paying the mortgage if she had the money or skipping monthly mortgage payments if she needed to fund other expenses. Plus, she could also draw on the HECM line of credit in case of emergency. Once she got the reverse mortgage she slept better at night since she had money in the bank and her expenses were lower than income.
Discussing the Decision to Get a Reverse Mortgage with Family Members
The decision to get a reverse mortgage was discussed with all family members.
Everyone’s emotional ties to the house probably contributed to the decision. Christmas’s, Thanksgivings, Fourth of Julys, birthdays were all celebrated at the house with 30-50 family members at a time.
The house was not grand, but it was definitely home. And it was at home that everyone wanted grandma to stay.
Living With the Reverse Mortgage After a Major Health Event
A year after she put the reverse mortgage in place, my grandmother suffered a stroke and lost most of her mobility.
After being in and out of rehabilitation clinics, the family made the decision that they wanted her to continue to live in her home, so they began to use some of the line of credit to help subsidize in home care – which was augmented by one family member living with her to care for her overnight and weekly visits from her children to provide care on the weekends.
Overall it was a big family effort to provide her a comfortable life and enable her to age in place.
She Got Lucky with Her Line of Credit
Grandma’s stroke happened when housing prices had dropped significantly. However, because Grandma had not used much money from her line of credit, this account had grown and continued to grow. In fact, despite lower house values, her overall net worth had grown due to the increased size of her line of credit — even though housing prices had fallen.
Note: Due to lower home prices at that time she likely would not have qualified for a HECM / Reverse Mortgage if she had waited to get the reverse mortgage and she might have had to sell her home during the downturn.
Final Years with a Reverse Mortgage
My grandmother in law never quit life. Although she was bed ridden and her intellectual capacities were diminished, she showed no signs of giving up..
After funding her in home care for more than 3 years, the money from the reverse mortgage was nearly gone. Grandma could continue living in the home, but she could no longer afford the private nursing that she required.
It was with much regret that she was moved to a nursing home. With a reverse mortgage, you are allowed to be in a nursing facility for up to a year before the loan comes due.
The family was in the process of figuring out what to do with the home and trying to find ways to afford to bring her back home. However, my grandmother passed away at 96 while in the nursing home.
What Happened When the Loan Came Due?
When my grandmother died, her reverse mortgage came due.
While the reverse mortgage balance had grown, housing prices had also recovered, so her children were able to sell the home for over the mortgage amount and still inherit a modest amount of money.
Note: If her house price had not recovered when she passed away and it was worth less than the reverse mortgage debt amount, then her children (the heirs) would have had the option to buy the home at 95% of the appraised value if they wanted to keep it OR return the house to the lender and FHAa’s insurance fund would cover any shortfall.
Were There Alternatives to the Reverse Mortgage?
If my grandmother had not put the reverse mortgage in place, then the family would have had to write checks for $50,000 per year to help pay for her care. This would have totaled about $200,000.
While this would have resulted in less interest debt on the home, not all the children in this very big and close family had the ability to write checks for an indefinite amount of time to contribute financially to her care. They had their own retirements and children’s college costs to worry about.
At the time my grandmother took out the reverse mortgage, she could have also opted to downsize her home. But that was not an option she would have been happy with. The family could have also taken over her mortgage payments, but it was not a financial commitment they were able to make.
Lessons Learned
I’m sharing her story, because she used her home equity more strategically than most people by putting a reverse mortgage in place on her terms before she absolutely had to have it. When her husband passed away, she had never managed money. However, she learned quickly and made smart financial decisions her whole life.
I believe that the reverse mortgage enabled her to be in the home she loved for as long as possible and to experience the best possible care for much of the end of her life.
My grandmother in law was a wonderful person with a big loving family and this financial decision was — mostly — a good one for everyone involved.
