It’s more than four walls and a roof. It’s a place filled with memories—birthdays, first days of school, holidays and cheerful celebrations. It’s your family’s home and, for many, it is intended to be home for many years to come. But, with nearly two-thirds of a married couple’s assets tied to their home, substantial numbers of seniors question just how golden their retirement years will be.
A reverse mortgage loan is one option that may deserve careful consideration as retirement needs grow and savings and Social Security benefits may not be enough to retire on comfortably and with confidence. According to Jamie Hopkins, associate professor of taxation at The American College Retirement Income Program, many older Americans don’t consider home equity as a potential source of income for retirement.
In fact, Hopkins’ most recent research concerning retirement planning revealed that 83 percent of participants showed a desire to stay in their current homes, but less than half considered using home equity as a retirement income tool. Only 14 percent of respondents considered a reverse mortgage loan as a means of tapping into their home’s equity to help supplement their income.
Paying for Care with a Reverse Mortgage
A reverse mortgage may offer a solution to help cover long-term care costs and ensure older homeowners achieve their goal of aging in their homes. A reverse mortgage loan is a financial tool designed for homeowners age 62 and older. With a reverse mortgage loan, the homeowner no longer needs to make monthly mortgage payments for as long as the home is their primary residence and they continue to pay for property taxes, homeowners’ insurance, home maintenance and otherwise meet the loan’s terms. Proceeds from the loan can be used at the borrower’s discretion to pay for things like medical expenses, in-home care, home repair and remodeling, or to pay off other debts.
This is just the tool Robert Loya was looking for to help fund his mother’s in-home care. Loya held medical and financial powers of attorney for his mother Mary and was committed to helping her live out her days as she wished—in her home that held so many dear memories. “Mom dedicated her life to raising us kids in a house full of love,” Loya recalls. “I figured it was our time to repay the favor.”
As Mary got older, she was adamant about aging in place in the family home. But, for her son, achieving that would require some out-of-the-box thinking. “We brought in professional caregivers to assist with her mobility and hearing issues. In-home care is very expensive,” Loya admits. “We had already gone through some of my savings and some of my mom’s savings and investments, and we were committed to continue this care at home. We decided to look into a reverse mortgage loan as a financial planning option.”
Over the past five years, the costs for in-home care, adult day care, assisted living and skilled nursing care have risen by approximately three percent. While the costs of long-term care can be staggering, older Americans may still be apprehensive about using a reverse mortgage loan to cover these expenses. Hopkins believes more seniors should give reverse mortgages a second look.
“There have been a lot of changes in the reverse mortgage world. There are more consumer protections. There is a financial assessment now to qualify for a reverse mortgage. The rates and fees have really come down with reverse mortgages over time, so you have a very competitive borrowing atmosphere,” explains Hopkins.
This is good news for the almost 80 million baby boomers that the Pew Research Center estimates will retire over the next 18 years. According to recent data from the National Reverse Mortgage Lenders Association (NRMLA), older Americans now hold nearly $6 trillion in untapped home equity, which is more than most other assets they’ve saved. Since Social Security benefits, workplace retirement plans and personal savings are not always enough to live on comfortably, baby boomers will likely need to start considering reverse mortgages as they near retirement.
Many financial experts recommend using a reverse mortgage growing line of credit, which can be used as a standby source of funds for emergencies such as health-related challenges. A reverse mortgage line of credit can also help older Americans avoid tapping other investments and assets when unexpected expenditures arise.
Whether a homeowner decides to receive their proceeds in the form of a lump sum, in monthly payments, as a line of credit or a combination of these options is entirely up to them. As part of the loan application process, prospective borrowers are required to attend financial counseling from a third party and are encouraged to consult with their family and trusted advisors to ensure they work with a reputable lender that can ensure their assets are protected.
In the Loya family’s case, the choice was easy to make. Although Mary died last year, her children are grateful for the opportunity to take a reverse mortgage loan out on the family home.
“My mom didn’t require care until she was 85 and lived out her days in her home until she passed away at age 92. My sister and I were able to give Mom her wish of staying in her home until she passed,” continues Loya. “We believe she lived longer by being able to stay in her home and receive the around-the-clock care she needed. For us, the reverse mortgage loan was a real blessing.”
1. http://retirement.theamericancollege.edu/sites/amcol-nylcri/files/Home_Equity_as_Income_Webcast.pdf 2. http://www.fa-mag.com/news/the-boomer-effect--reducing-the-impact-of-senior-care-on-the--largest-generation-in-history-and-their-gen-x-heirs-22200.html 3. http://retirement.theamericancollege.edu/sites/amcol-nylcri/files/Home_Equity_as_Income_Webcast.pdf 4. Comments from Robert Loya, used with permission and waiver on file 5. https://www.genworth.com/services/servlets/pdf/CostofCare_2017 6. Jamie Hopkins interview with US News and World Report 7. http://www.pewsocialtrends.org/2010/12/20/baby-boomers-approach-65-glumly/ 8. https://www.nrmlaonline.org/2016/06/24/senior-home-equity-exceeds-6-trillion-first-quarter 9. http://www.jchs.harvard.edu/research/housing_americas_older_adults 10. http://retirement.theamericancollege.edu/sites/amcol-nylcri/files/Home_Equity_as_Income_Webcast.pdf Other resources: https://www.aag.com/financial_advisors/tools/boomer-effect-white-paper.pdf https://www.aag.com/financial_advisors/tools/boomer-effect-white-paper.pdf