As our industry continues to evolve and the programs get more competitive I think there will be a segment of the population that will use a reverse mortgage to fund their “golden years” somewhere warmer.  Here in Chicago the snowbirds all head south right around this time of year and who can blame them? 

Bob Waun is a good friend of mine and we’ve spoken about this trend more and more recently because people up north continue to discuss how do I get down south for a few months of the year and out of this crazy cold weather?  Below is a story about one of Bobs clients that used a reverse mortgage to get down to Florida during the harsh winters in Michigan.  He was nice enough to give us his reverse mortgage chapter from his book Besting to show how one of his clients used a reverse mortgage to fund their lifestyle improvement.

Theresa was living alone in Michigan, where the winters can be cold and harsh. Her home has appreciated over the years and was worth $350,000 when she decided she could no longer stand another winter in the Midwest. She had worked diligently to pay down her mortgage to $45,000, by having a 15-year mortgage during her working years.

Her monthly mortgage payments were $404 per month. The prospect of buying a second home in Florida with an additional mortgage payment would stress her fixed income too much. She felt destined to rent or move permanently to Florida. “I loved my Michigan home, but I wanted to be in Florida sunshine for more than a couple months and I believe in ownership not renting” Theresa said.

She also had some repairs she wanted to do to her home that would make it more comfortable, and maybe more valuable. But without a little extra cash, she felt the repairs would have to wait.

Being 66 years old, she was able to obtain a reverse mortgage. After attending a required educational program on the details of a reverse mortgage, she took a lump sum version of the loan. The reverse loan paid off her $45,000 mortgage, and gave her a one-time lump sum of $125,000. She will never need to pay another mortgage payment on her Michigan home, yet she can own it for the rest of her lifetime. She saved $404 a month in mortgage payments, that were freed up to supplement her retirement income.

First, she made the repairs to her Michigan home.

Then she found a condo hotel unit in Orlando for $125,000 and paid cash to purchase the property, owning it free and clear. For 3-4 months in the winter she intends to stay at her new condo hotel, and will enjoy the amenities of a full service hotel, in a prime location. The other guests at the hotel will provide her an endless stream of new people to meet and play golf with at the many neighbouring courses.

When Theresa heads back north to her Michigan home she will hand the keys to the hotel’s front desk and they will rent her condo nightly to visitors to Disney World and Orlando’s numerous other attractions. Her 42% share of the rental income will help subsidize the condo dues, property taxes and possible provide yet another stream of income for her now super charged retirement lifestyle.

At any point that she chooses to move to Florida full time, she can sell her Michigan home and pay off the reverse mortgage. If her home continued to average the historical appreciation of the past, she will like have more cash equity from the sale than she did the day she took out the reverse mortgage. Plus her condo hotel is also growing in value. None of this value is taxable until she sells the properties, “its like the ultimate tax-free retirement account,” she claims.

To get yourself a copy of Bob’s book click here.  Also, be sure to check out Bob’s new blog at Second Homes 411.

Have a great weekend!

Technorati tags: Reverse Mortgage, 2nd Homes, Seniors, Condo Hotel, Condotel