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Gone are the days of burning the mortgage

July 25, 2009

Years ago, I can’t tell you how many, people used to have parties to burn their mortgage. I imagine that this is a concept hard to fathom for today’s generation. But it is also an event that fewer and fewer seniors ever get to realize. Recent statistics show that currently over 80% of the recipients of a reverse mortgage use the proceeds to pay off an existing mortgage. Many of my clients state that they want to leave their home, debt free, to their children. Yet in reality they may never see their home free of a mortgage, nor do their children plan to move into the home at any time. Such was the case of my following clients:

Katherine and Henry had a 30 year mortgage that was 10 years old. The original mortgage was for $31,000, after 10 years of payments they still owed over $27,000 to Bank of America. Every month they struggled to make the payment, by the end of the month Katherine was fasting from morning to night because there was not enough money left to buy groceries. Katherine is diabetic, fasting is detrimental to her health and can lead to devastating circumstances. She stated she wanted to give the home to her daughter, who already had her own home and who was not aware that her mother was sacrificing her health to stay current on her mortgage. She didn’t know her mother’s refrigerator was empty at the end of the month. I calculated an amortization schedule for their Bank of America mortgage, computing the interest that was paid monthly on their conventional loan. Each month approximately $180 of the couples social security money was going just to the interest on the loan. That $180 would have bought plenty of groceries to end Katherine’s fasting. Had they kept the loan for 30 years, the cost would have been over $50,000 in interest.

Many factors need to be considered when entering into a reverse mortgage. But the most important question I ask my client is, “Do you think this could give you peace of mind?” Isn’t that what we all want? The reasons for a reverse mortgage continue to vary from client to client. But consistantly my clients tell me that not only did the mortgage relieve them of financial burdens, it also gave them “peace of mind.” That to me, is priceless. Maybe the next time I close a reverse mortgage and relieve someone of a mortgage payment I’ll pick up some marshmallows, graham crackers and Hershey bars. We’ll have a mortgage burning party and make s’mores. Doesn’t that sound like fun?

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