By Carol Church, Writer, Family Album
Reviewed by Martie Gillen, PhD, Department of Family, Youth, and Community Sciences, University of Florida
We bought our home in 2003, and sometimes it seems like it will be forever until we pay off the mortgage. Still, like most homeowners, I’m certainly looking forward to meeting that milestone. It will be satisfying to finally completely own the largest investment we’ve ever made.
Getting Value from Your Home As You Age
For most older Americans, the house they live in is their most valuable asset. But in general, that asset isn’t available to help with daily expenses. Of course, many older adults may be hoping to pass on their home or the proceeds from its sale to the next generation. But money can really get tight at this time of life, especially for those who are trying to delay taking Social Security or who put away limited retirement savings.
Option 1: Downsize
What can older homeowners do if they’re struggling to make ends meet but own a valuable home? While there are many options to consider, the most obvious choice is probably to “downsize” and move out of your current house to a smaller, more affordable home, apartment, or condo. While this option involves a fair amount of work for the homeowner (or money to pay others to handle packing, etc.), it may have other advantages, such as reduced upkeep on a smaller, less elaborate home and yard. You’ll also probably have lower real estate taxes. But you’ll have to give up your current home, which may be unappealing.
Option 2: Home Equity Loans
A second option is to take out a home equity loan on your house. This could be a good idea if you need money upfront to pay for some home improvements. You won’t lose equity in your home with this option. However, keep in mind that this is a traditional loan that you must make monthly payments on, so you need reliable income to pay it. You also might not qualify for such a loan.
Option 3: Reverse Mortgage
Another possibility that you may have heard of is to take out a reverse mortgage. In reverse mortgages, which are only available to people over age 62 who own their home outright (or nearly so), the equity you have in your home is converted into income for you. You can receive this money as a lump sum, a line of credit, or as monthly payments. The value of the home will be reduced by the amount you borrow, plus interest on that loan. Protections are in place to keep you from borrowing more than your house is actually worth. There are three different kinds of reverse mortgage, and the best option for you will depend on your situation.
With a reverse mortgage, the money you’ve “borrowed” from your equity must be eventually be repaid. This happens when you (and your spouse or partner, if they co-own the home) leave the home permanently or die. The loan can then be repaid through the sale of the home or other sources.
Anyone considering a reverse mortgage needs to be cautious and an informed consumer. Fortunately, there are counselors available you can help you talk through your options. You can find a counselor here or by calling (800) 569-4287.
Option 4: Other Assistance Programs
There are also other programs available that can help older homeowners who need assistance in order to stay in their homes. For instance, you may be eligible for local programs that reduce utility bills or offer help with home modifications. For more information, visit this resource at the National Institute on Aging.
And for much more on reverse mortgages, downsizing, and home equity loans, please visit the resources in Further Reading. There are options for older homeowners who need help—it’s up to you and your family to reach out and find what works for you.
References and Further Reading:
Consumer Financial Protection Bureau. (n.d.) How do I know if a reverse mortgage is a good idea for me? Retrieved from http://www.consumerfinance.gov/askcfpb/228/how-do-i-know-that-a-reverse-mortgage-is-a-good-idea-for-me.html
Federal Trade Commission. (2011). Reverse mortgages. Retrieved from http://www.consumer.ftc.gov/articles/0192-reverse-mortgages
National Council on Aging. (2013). Use your home to stay at home. Retrieved from http://www.ncoa.org/news-ncoa-publications/publications/ncoa_reverse_mortgage_booklet_073109.pdf
U.S. Department of Housing and Urban Development. (n.d.) Frequently asked questions about HUD’s reverse mortgages. Retrieved from http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/rmtopten