A Last Resort for Senior Homeowners?

When people ask me about Reverse Mortgages,  a lot of the time they will say something to the effect of 'That’s just a last resort thing, right?' I would never want to have to get one of those.

These kind of statements are usually a result of misunderstanding of the Reverse Mortgage (RM). I will be covering several of the “myths” and truths in future blog posts.

In reality, for many senior homeowners their true last resort is having to sell the house that they have been living in for a significant portion of their life. In many cases the only reason to do either (Sell or get a reverse mortgage) is to access the equity (difference between the value and any liens) to be able to live more comfortably.

Selling may make more sense if the homeowner must go to an assisted living community for services. If in-home assisted living is possible, the RM can help, allowing the senior to remain at home. If needs are income based, and the senior needs to sell the house so they can live off the proceeds, the RM may do the same, but allowing them to stay in the home they are comfortable in.

If costs are a concern, the costs of selling a home could be much greater than that of doing the RM..Using an example of a $400,000 home, a sales commission might be between $20-25,000. However, closing costs on an RM can be as low as $2-3,000 and upwards of $18,000 depending on program.

Many senior homeowners still have financing on the property. This may have been done when they were fully employed, but are now depending on Social Security and whatever retirement savings they have. The economy has hit the retirement savings pretty hard for a good number of people, with it no longer lasting a lifetime. These seniors may be in a position that they look at selling the house as they can no longer are able to keep up with the mortgage payments.

If the equity in the property is enough, the RM can payoff the existing loan(s) allowing the senior to stay at home and not have monthly payments. To them selling would have been a last resort, which would have put them in a position of having to move into a place with no memories etc.

Recently I helped a couple who had already packed their boxes, thinking selling was their only solution. He had been laid off and was not finding work. They had a mortgage over $350,000 with payments of $1,900+. They were finding it very tough to make the payments each month, and thought selling was the only answer. This was a home that was her parents' before they lived there. We discussed the RM options and it was an incredible discovery for them. An RM was done that paid off the existing financing leaving them with a mortgage with no monthly payments. There were also funds which allowed them to do some home improvements.

Another last resort that could come up is having to move to an assisted living community as there is no income for in-home assisted living. With the right amount of equity, an RM can be done where the lender actually sends the borrower funds each month. Depending on the age of the borrower(s), the value of the home, and current interest rates, this monthly amount could be
significant. Again, this option allows the senior homeowner to stay at home
where they are comfortable.

Aside from these uses, the RM has been used many ways as discussed before. These can include purchasing a home, purchasing investments, helping family, or just having fun…I have spoken and worked with many people who did not see it as a last resort, but one for opportunity and to extend a quality of life..

Check out the August newsletter of the Petaluma Senior Center.