What savvy homeowners do to make sure they will be financially prepared to age in place comfortably and securely.
Most of us don’t want to talk or even think about it, but the nagging fear of running out of money someday is real, and for many, overwhelming. This is especially true for those in retirement living on fixed income and limited savings. Without a clear plan or solution, this problem intensifies financial stress and erodes the quality of life.
The economic transition from working years to retirement is challenged by reduced income and accumulated savings that now must be sufficient to support ongoing lifestyle costs over a longer term as life expectancies continue to increase. Moreover, retirement savings are continually threatened by unexpected expenses and market losses, such as those experienced from the Great Recession (2008).
In our collective experience working with hundreds of senior homeowners, their families, and professional advisors, we have been able to educate and demonstrate the value of how home equity (housing wealth) can be used to increase financial assets and mitigate this growing crisis.
Reverse Mortgages Increase Financial Security
The solution for some has been a reverse mortgage. For those who want to age-in-place at home, a reverse mortgage may be the answer. A reverse mortgage converts a portion of accumulated housing wealth to cash, periodic payments, and/or a growing line of credit for future needs. This unique program, for homeowners 62 and older, provides a ready source of cash when needed to supplement other financial resources and extend retirement security – without selling, giving up ownership, or taking on the unwanted burden of making payments.
Unlike a traditional (forward) mortgage or home equity line of credit, where borrowers make payments to lenders, it is dubbed “reverse” because the lender makes payments to the borrowers instead. The reverse mortgage loan has no maturity date, so the owners can live in the home indefinitely as long as they fulfill their obligations.
Borrower Obligations to Lender
To keep the loan in good standing, borrower requirements are limited to:
- Keeping real estate taxes, insurance, and property charges current
- Performing basic home maintenance
- Living in the home as primary residence.
Recent Examples
- Hingham, MA – Widow (age 75) living alone in $700,000 home with no mortgage, Social Security income only, and savings nearly depleted. Goal: age-in-place with financial security. A reverse mortgage provided a credit line of $401,300 enabling her to draw funds as needed for living expenses, maintain a reserve for unexpected costs, and achieve peace of mind knowing her financial situation was secure.
- Dorchester, MA – Married couple (68 and 70) own and reside in a $750,000 two-family home with $225,000 mortgage; income derived from rent and Social Security; and $150,000 retirement savings. Goal: improve cash flow, increase financial reserves, and age-in-place. A reverse mortgage paid off the $225,000 mortgage (eliminating the $2,150 mortgage payments) and provided a growing credit line of $171,500 increasing liquid funds to $321,500 (150,000 + 171,500).
- Boston, MA – Married couple (72 and 76) own and live in a $1,800,000 condominium with mortgage debt totaling $450,000; $4,300 monthly income from pensions and Social Security; and, $375,000 savings. A proprietary (jumbo) reverse mortgage paid off the $450,000 mortgage eliminating $3,750 monthly payments and provided additional funds of $401,400 to increase their savings to $776,400 (375,000 + 401,400).
Reverse Mortgage: Right for Some – Not for All
Like everything in life, reverse mortgages have advantages, disadvantages, costs, and other considerations that need full understanding. To determine if one could be a good fit requires consideration of individual circumstances, goals, preferences, and resources. Clearly, every situation is different requiring the solution be tailored to individual near and longer-term needs. If it’s not a good fit, other options should be explored.
To Learn More
The most comprehensive source for reverse mortgage information is the website of the National Reverse Mortgage Lenders Association (NRMLA) – www.reversemortgage.org.
By far, the best approach is to start early and develop a customized financial plan that maximizes the value of all financial assets, housing wealth, and other resources one may have. Consultation with a qualified experienced financial planner to facilitate the planning process is highly recommended.
Feasibility Study
To learn if, or how, a reverse mortgage might apply to a given situation, contact a Certified Reverse Mortgage Professional (CRMP) in your area. CRMPs are the elite reverse mortgage professionals. Each has been exam tested, completed experience requirements, and pledged to NRMLA’s rigorous Code of Ethics and Professional Responsibility. A complete listing of CRMPs is available on the NRMLA website, www.reversemortgage.org.
George Downey, CRMP (NMLS 10239) is the founder of Harbor Mortgage Solutions, Inc., Braintree, MA, a mortgage broker licensed in Massachusetts (MB 2846), Rhode Island (20041821LB), NMLS #2846. Questions and comments are welcome. Mr. Downey can be reached at (781) 843-5553, or email: GDowney@HarborMortgage.com
How to Protect Home Equity Against the Next Housing Market Downturn
