At some point when I'm gone (currently 78), my wife (75) will need additional income to live on. Her options appear to be sell our current home and move into something smaller or take out a reverse mortgage and live off the proceeds of that. My current income consists of pension - 35000, social security - 15000 , investments - 20000 and her social security - 10000.for a total of 80000. After my death, her income will be investments - 20000 and social security - 15000 for a total of $35000. I estimate that her expenses living in the current house will be about 50000. The house is worth about 600,000.
A reverse mortgage calculator for the new HECM "Saver" Reverse Mortgage
(much lower origination fee than original HECM) in affect on Oct 4, 2010
shows that today I could take a lump sum of about $350000 or take
monthly payments of $2500 for as long as my wife or I lived in the
house. If monthly payments are taken, the interest on the loan amount
can go up 2% a year to a maximum of 8%. The interest is not payable now
but is added to the loan balance. If a lump sum is taken, the interest
rate is fixed at the current rate and cannot be increased. Investing
$350000 in high quality dividend paying stocks at 3-4% would appear to
take care of the difference between my wife's estimated future income
and expenses. Using the additional income available now would be used to
make improvements to the house. Of course when interest rates go up, I
would move some of that 350000 into laddered CD's. Interest earned from
the investment would be taxable but monthly payments from the reverse
mortgage are not taxable.
One alternative to the above approach is to do nothing at this time.
When I die, let my wife and kids figure out the best approach to take at
that time. The problem is what will the interest rates be at the time
of my death? Not knowable at this time. However, when I run the above
numbers through the HECM 1.51 program
for calculating the
reverse mortgage, it appears that the amount available decreases as
interest rates go up. For example, If I use 8% as the rate of interest
instead of the default 5% in the HECM calculator, the amount available
in a lump sum and/or monthly payment decreases by 35 to 45 %. So If I do
nothing now and rates are 7-8% when I die, my wife will have a lot less
available to her then she would have if I took the reverse mortgage now.
Am I doing that right?
I'd appreciate any comments on any of the above and please let me know
of any errors in my thinking.
- posted 9 years ago