Skip to main content

Equity Rocks!

In the ‘80s and ’90s (I realize that was about a million years ago to many of you), there was a musician who had his share of the limelight and went by the name of Adam Ant (I’m about 175% sure he wasn’t born with that name).  At any rate, Mr. Ant wrote his own music and lyrics, and he was well known for having lyrics that made no sense – in fact, in many instances, he went out of his way to MAKE SURE they didn’t make any sense.  His 1985 hit “Vive Le Rock” is one such example with these opening lyrics: “Bang bang, you’re dead / Did not, did too / Stop diddy-bopping buddy / Bouncing Betty on you.”  Many people think the mortgage industry pulled an Adam Ant when it introduced Reverse Mortgages back in 1989 - the words were all in English, but the way they were arranged on the page just didn’t make any sense. 

The easiest way to appreciate a Reverse Mortgage is to STOP thinking about a mortgage as a means to an end: owning your home outright with no further monthly payments.  Instead, you need to think of your home as a vehicle that keeps you moving along UNTIL THE END (quite literally).  And remember, a Reverse Mortgage not only applies to refinancing – it enables people to BUY a home.

Rather than boring you with the ins and outs of a Reverse Mortgage, let me give you a practical exercise to run though in your head.  For most people in their golden years, medical care is their biggest expense.  You’re retired, your house is paid off, and your source of income is your investment account.  If managed properly, the funds in that account will take care of your needs and wants until you pass away.  However, if you have medical needs with accompanying expenses that weren’t factored in when you set up your investment strategy, that account is going to be depleted a lot faster – and while your house is paid off, and you have no monthly mortgage payment, your house isn’t really “doing” anything for you.  Conversely, with a Reverse Mortgage, you can get paid TO LIVE in your home, and the money you make from your Reverse Mortgage can be added regularly to your investment strategy and/or cover those unexpected medical expenses – either way, your investment account stays a lot healthier, right?  Also, with a Reverse Mortgage in place, you stay in your home as long as you wish. 

At this point, you’re probably asking, “That’s fine and dandy for people who are over 62 years of age, but what about someone young who’s looking to buy her first house?”  I’m glad you asked, and the answer is SIMPLE: the younger you start, the more likely you’ll have a home in your golden years that will have a boatload of equity that will enhance your retirement and investment strategies.  Let me show you.

Making only $25K/year, a young person could qualify for a duplex that costs $200K by renting out the one side for just $650/month and living in the other half (for at least a year).  This could be done through an FHA loan, so the down payment would only need to be $7K (3.5% of the purchase price), and that $7K could be a gift.  A person working an hourly job at $12.50/hour, 40 hours/week (with two weeks off for vacation – if their employer didn’t give them paid vacation) earns $25K/yr.  The average starting salary for a college graduate is about double that at $50K.  My point: starting now IS POSSIBLE (and HIGHLY recommended), and the sooner you start, the faster you can “trade up” to your dream house and eventually that last house that’s going to take care of you. 

Let me close this with a set of lyrics that make a little more sense – they’re from Billy Joel: “Hot funk, cool punk, even if it’s old junk / It’s still rock and roll to me.”  Translation: age and style don’t matter – it’s all about the equity!

Comments

Post a Comment

Popular posts from this blog

Financial Nearsightedness

Years ago when the Consumer Financial Protection Bureau was created, we had some wacko thought that part of the job of the folks filling its ranks would be to . . . protect the consumer.  In some people’s view, this would mean that builders of new homes would no longer be able to dangle the carrot of “free” incentives if the buyer would finance the purchase through the builder’s in-house or preferred lender.  To those same people, it just made sense that the CFPB was created to even the playing field and make it so that the consumer got the very best deal available.  Well, we were wrong. Builders ARE allowed to offer incentives for using their in-house and preferred lenders despite the fact that sort of goes against the idea that the consumer is getting the very best deal available. And for most consumers, all they see is the incentive, and this computes to less money coming out of their pocket at closing  –  and they’re right (sort of).  The purpose of today’s article is si
Post a Comment
Read more

Topless Professionals - Nope

Fads come and go, certainly, but you can’t always tell the difference in the moment between a fad and a trend  –  because refusing to adapt to the trends can be limiting . . . if not disastrous.  Let me share a couple of examples where failing to see where things were headed didn’t turn out well.   An engineer presented the idea of a “filmless camera” to the executives at Kodak back in 1975, but they laughed him to scorn.     In 2012, Kodak was forced to file for bankruptcy because they failed to adapt to the digital world.     We all know Steve Jobs and Steve Wozniak, but how many of us recognize the name of Ron Wayne (and, no, that’s not Batman’s brother)?     Ronny was the third founding member of Apple, and he sold his 10% stake in the company in 1976 for $1500.     His shares would now be worth over $50 billion.     WAY BACK in 2000, Reed Hastings approached Blockbuster and offered to sell Netflix for $50 million.  Blockbuster turned Hastings down.  Netflix is now wor
Post a Comment
Read more

Sitting on the Fence Only Gives You Splinters

“I woke up this morning and couldn't find my socks, so I called information.   She said they were behind the couch.   She was right.”   Reading the words of comedian Stephen Wright isn’t quite the same as actually hearing them with his deadpan delivery, but they’re still funny.   The same can be said for timeless wisdom: whether you hear it coming directly from the lips of a wizened old sage or you read it in a little missive such as this, it’s still wisdom, right?   They say a picture’s worth a thousand words, so you’re about to get 2,000 words’ worth right here: I’m going to show you two graphs that are going to speak volumes about buying power and interest rates – far more than I could convey if I tried to write over 2,000 words (and probably put you to sleep).   Obviously, this first graph shows how even a slight change in interest rates can affect someone’s buying power in the real estate market.   There’s a fairly big swing between what someone can a
Post a Comment
Read more