Budgeting With A Reverse Mortgage

Regardless of how well you plan, regardless of how well you budget and regardless of how well you think you are set up for retirement, stuff happens. And typically, when stuff happens, it happens in a big way. When stuff happens, it can have a massive impact financially. It can lead to debt, use of retirement savings or the inability to do what needs to be done because of a lack of funds.

Use A Reverse Mortgage to Prevent Blowing Your Budget On Unexpected Large Expenses

Those who have a pet with a serious medical condition like cancer or renal failure, can spend thousands (sometimes $10,000 or more) on treatments. [1]

Many seniors who take expensive drugs for arthritis, hepatitis C, multiple sclerosis and cancer will spend between $4,000 and $12,000 in 2016 just to take one drug.[2]

My grandparents got their reverse mortgage line of credit, not because they needed the income, but because they were living on a fixed government pension and had very little savings. They wanted a way to deal with the stuff life threw at them without using credit cards and without needing to dip into their savings.

Unfortunately, very few senior homeowners consider a reverse mortgage as an option for dealing with the unexpected expenses in life. Instead they use credit cards, various financing schemes, dip into retirement too often and too much or they just don’t get done what needs to be done. These alternative options come with a price.

A credit card with a balance of $3,000, with an interest rate of 15%, and a minimum payment of 2%, or $25, will take a little more than 16 years to pay off if you only make the minimum payment each month. For some of you reading this, that is longer than your life expectancy.

In other words, you could end up paying on that credit card for the rest of your life. Not only that, but your estate could still be on the hook for paying off that credit card. This is not just credit cards. It includes store charge cards, care cards to pay for medical expenses, overdraft protection lines and personal lines of credit.

Dipping into retirement can have drastic effects as well. Obviously, retirement savings are there to help you through retirement as well as to deal with life’s planned and unplanned expenses. However, I highly suggest sitting down with your financial advisor to see how the withdrawal of funds will affect you.

Things you need to consider are tax ramifications, current state of the market and future availability of funds. Even if you did have a reverse mortgage, the advice from your financial advisor and CPA can help you determine if you should use those funds or not.

Not getting done what needs to be done can also come with severe consequences. Not getting the car fixed can lead to more problems and larger bills. Not buying the medication could lead to more complications or even worse, death. Not getting the roof repaired or replaced can lead to leaks, mold, dry rot and more. Using the excuse of not having the money is unacceptable, especially if you own a home and could qualify for a reverse mortgage.

The biggest problem with being on a fixed income is that you are on a fixed income. Every little monthly expense erodes your income. And unlike a younger person that is still working, you do not have the same amount of time, nor opportunity, to overcome financial setbacks.

A reverse mortgage is not only a way for you to deal with unexpected financial expenses. It is a way to create financial peace of mind knowing that if life throws stuff your way, you are prepared.

Finally, keep in mind that a reverse mortgage is not like Willy Wonka’s Golden Ticket. It is not an unending supply of funds. It needs to be treated with respect, and used appropriately.

[1] http://www.marketwatch.com/story/lower-your-vet-bill-2013-09-05

[2] http://www.benefitspro.com/2015/12/09/seniors-face-enormous-out-of-pocket-prescription-c