Navigating the grey divorce with reverse mortgages: A case study
In recent years, the phenomenon where couples aged 50 and over decide to part ways, now called the “grey divorce”, has been on the rise in America and is happening at historic rates today. Among the list of challenges and financial burdens that occur with any divorce is the division of assets, particularly when it comes to the family home. So today I would like to share a recent case study to understand how reverse mortgages can play a pivotal role in this situation. (These are not the real names of the actual clients).
Meet John and Sarah, a couple in their late 60s who owned a home together that is worth around $1 million. After many years of marriage, they found themselves contemplating a divorce. However, John expressed a strong desire to remain in the family home and age in place. Sarah, understanding his sentiments, agreed to move out with the understanding that John would find a way to buy her out of the home.
To facilitate this arrangement, John decided to explore the option of a reverse mortgage. With the house being their most significant asset, a reverse mortgage offered a solution that allowed John to buy out Sarah’s equity in the home, thus enabling him to retain ownership and continue living there comfortably. John was ultimately able to do a “cash out” refinance and take around $400,000 of equity from the home to buy out
Sarah’s ownership interest in the home. Instead of doing a traditional mortgage which would have caused John to incur a hefty monthly mortgage payment, the reverse mortgage allowed John to get the necessary cash out without incurring a monthly mortgage payment of principal and interest.
Meanwhile, Sarah began her own journey to find a new place to call home. After the divorce, she found herself with a limited amount of money to purchase a new home and keep some money in the bank to live the rest of her life. Sarah did not want to incur a new mortgage payment at this stage in her life either and was ultimately limited in her purchasing power based on her income and assets. She then turned to the option of a reverse mortgage as well to see if by getting a reverse mortgage she could purchase a more expensive home that she could comfortably and safely live out the rest of her life. Sarah was able to get her own reverse mortgage to help finance the purchase of her new home which was close to $650,000, while not incurring a monthly mortgage payment of principal and interest. By utilizing a reverse mortgage on her new property, Sarah could substantially increase her purchasing power, affording her a comfortable and secure home in her post-divorce life.
The strategic use of reverse mortgages in this case study highlights the versatility of these financial instruments, especially in the context of grey divorce. Rather than facing the prospect of selling the family home and dividing the proceeds, John and Sarah were able to structure a solution that aligned with their individual preferences and financial needs.
For John, the reverse mortgage not only enabled him to maintain stability and familiarity by staying in the home but also provided a practical means of accessing funds without the burden of monthly mortgage payments. Sarah, on the other hand, found empowerment through the increased purchasing power afforded by her reverse mortgage, allowing her to secure a new residence and embark on the next chapter of her life with confidence.
It’s essential to note that while reverse mortgages can offer valuable financial flexibility, they also come with considerations and responsibilities. Potential borrowers should thoroughly research and understand the terms and implications of these financial products before making any decisions. Consulting with financial advisors or reverse mortgage experts can provide invaluable guidance tailored to individual circumstances.
In conclusion, John and Sarah’s case study underscores the potential of reverse mortgages as a tool for navigating the complexities of grey divorce, facilitating equitable asset distribution while empowering individuals to embark on new beginnings with financial confidence and security.
Gabe Bodner is a retirement mortgage planner and licensed mortgage originator in Colorado. Gabe utilizes the latest research from the top researchers to assist his clients in living for today and planning for tomorrow.to reach Gabe, call 720.600.4870, e-mail gabe@bodnerteam.com or visit reversemortgagesco.com.