A Downsizing Strategy for Retirees
By Dale Doughty, Manager
Reliant Mortgage Company, LLC


Many retirees often find, as they get older, that the home they are in is too difficult to maintain, hard to get around in or simply too large and expensive for their needs.

A more recent phenomenon we have seen is retirees who have had their investment portfolios get decimated while social security incomes remain steady and the costs of food, heat and medical care continue to skyrocket. Meanwhile, fixed incomes from bonds, CD’s and money market funds hover from 0% to 5%.

So, what is a good strategy to combat today’s hostile environment for retirees? The sudden return of the new and vastly improved FHA insured Reverse Mortgage. A Reverse Mortgage is simply a home equity line of credit that allows you to make principal payments, interest payments or even no payments. Each month that you choose to make no payment, the interest simply gets added to the balance of the loan. As long as you live in the home the house is yours, with no further obligation on your part and the title remains in your name. If you sell, the payoff on the home is satisfied (just like a traditional mortgage) and you keep the equity. The mortgage insurance provided by the FHA insures that you (or your heirs) can never owe more then what the home is worth, regardless of how long you live in the home.

In years past many types of reverse mortgages have hit the market. Many required you to give up title on your home and all of them had closing costs that could be $15 to $20,000 or more. The FHA Reverse Mortgages of today (referred to as a Home Equity Conversion Mortgage by the Feds) are far more borrower friendly and often have less closing costs then a traditional mortgage.

So, what does this all mean in a real life scenario? Let’s do a case study on the “Smith” couple:

The Smith’s own a 3,000 square foot home in the North End of Manchester, NH. Mr. Smith is 72 and his wife is 70. The home and yard are too big for them to maintain and Mr. Smith has a tough time negotiating the stairs to the upper floors. The taxes on the home are quite high and the Smith’s fixed incomes are way off from when they first retired back in the late 90’s. They eventually decide that they need to sell the home and find one that is easier to get around in and maintain.

They hire a reputable local Realtor who quickly sells the home for $450,000. The Smith’s had a small mortgage on the property of $90,000 and so they walk away with roughly $340,000 after paying the Realtors and other costs they agreed to.


Quickly they find a nice ranch in Raymond for $205,000 and at the suggestion of their savvy Realtor talk to their Banker about using a Reverse Mortgage to purchase the home to remain more liquid and help increase their fixed income.

The Banker does some calculations and tells them that they can offer a reverse mortgage of $123,000 to purchase the Raymond home. With closing costs, the Smiths pay the $87,000 balance out of the proceeds of the sale of their home.

Here is the Result:

Before Now
$90,000 debt (mortgage) $123,000 debt (Rev Mortgage)
Large Home difficult to maintain Single Story Ranch & Smaller
$1400/month mortgage payment No mortgage payment required
Inadequate fixed income Additional $253,000 Cash
$5500 Annual Taxes $4000 Annual Taxes
Home could be lost if the Smith’s got to a
point where they could not pay the mortgage Home is theirs for life


The Smith’s now have more money and time to spend with their grandchildren and have less stress or chance for injury in their new home. They have increased their annual disposable income by $18,300 (by eliminating their mortgage payment and reducing their property taxes) and added $253,000 to their bond portfolio which currently provides them an additional $7600/year in income for a total annual of benefit of $25,900.

The best way to see if a reverse mortgage is right for your particular scenario is to contact a licensed mortgage banker to schedule a needs analysis. If after this analysis is performed you wish to move forward you will be required to take a short class from an independent, US HUD approved counselor who will reiterate the pros and cons of a reverse mortgage and answer any questions you may have in an unbiased format.

Reverse Mortgages are a highly specialized product in the mortgage industry and not all lenders can or will do them. To schedule a needs analysis with me or one of Reliant Mortgage Company’s Reverse Mortgage Specialists call us toll-free at 1-877-440-2739.