Age in place with a reverse mortgage

Special to the Packet and the GazetteMarch 3, 2013 

If the last five years have taught us anything, it is that carefully made plans can be turned upside down. During this period, investments declined in value but costs for certain items like food, gas, medical care, taxes and insurance escalated. Home values, which were a safety net, plummeted to new lows and equity declined. It might take years to recover this lost equity. Since most seniors rely on a fixed income from investments, savings, Social Security and retirement funds, many have felt squeezed financially with few options.

If you add some of the other things that can occur, such as increased health problems or the death of a spouse, it becomes apparent that some things are beyond the control of a senior. Some seniors may decide to downsize to save money. However, the anticipated savings often are not as great given the current housing market.

If the idea of aging in place is the goal, then cutting costs will only go so far. However, increasing or maintaining income cannot come from dipping into the principal of investments and savings. Spending down principal cripples potential future income.

What is someone to do?

Using a reverse mortgage is one solution. A reverse mortgage releases a portion of the value of the house to pay off a mortgage or provide additional income. The amount released is based on the age of the younger borrower, the appraised value of the home and the current interest rate. If interest rates increase, the amount of funds that can be released decreases.

Additional tax-free income from a reverse mortgage can allow someone peace of mind that bills can be paid. If there are investments and savings, they can be preserved and not spent down. It requires no payments, so the loan grows. However, anyone who has a reverse mortgage continues to own their home, and they or their estate will never owe more than the appraised value of the house. A reverse mortgage has a unique feature that secures the loan only to the home, not the homeowner or any other assets they may have.

Myths surrounding reverse mortgages are legendary. The truth is the homeowner will continue to own the home. The cost of doing these loans has declined substantially. Paying taxes, insurance and maintaining the home in good condition are the only requirements of the loan. The loan does not affect income from Social Security or benefits from Medicare.

For someone who has gone through a life changing event, such as a death or illness, a reverse mortgage allows him or her to adjust without financial concerns. Seniors who decide to downsize can save some of the proceeds from the sale of their home for living expenses by purchasing a smaller home with a reverse mortgage.

A reverse mortgage can provide peace of mind to age in place without financial stress and to enjoy a well- deserved retirement.

Joan Hillman is a reverse mortgage specialist for Franklin Funding Reverse Mortgages in Bluffton. She can be reached at 843-227-2433 or joan@franklin-funding.com.

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