Options to Reverse Mortgages
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On the surface a reverse mortgage seems like a good idea. And it is for some people. Before anyone gets one they should make sure all options are explored.
What are Reverse Mortgages ?
A reverse mortgage is an option for homeowners age 62 and older to convert their home equity into cash. There are no loan payments required until the owner no longer lives in the home or stops meeting the requirements of the mortgage.
In addition to the standard loan fees (appraisal, closing costs, etc.), this type of loan requires the borrower pay for mortgage insurance. The home must also be in very good condition and repairs will be required for any deficiencies.
Alternatives to Reverse Mortgages
My father-in-law could no longer make ends meet after the loss of his wife and her social security income a few years ago. He opted to get a reverse mortgage, but I don’t think he seriously considered any of these options below.
Shared Housing
Many people moved to shared housing during the recession, but it is also a good way for seniors to decrease living costs and still remain in their own home. Renting out a bedroom or two would have easily replaced my mother-in-law's social security check.
For those that don't want to share living space their home may accommodate converting the basements or one floor to an apartment or in-law suite.
Downsizing
Often seniors can get the financial breathing room needed by selling their home. They no longer need the space of the family home and it may require more upkeep. Renting or buying a smaller home would have eliminated the costs my father-in-law occurs keeping up a yard and repair on a 60 year old home.
Other Deferred Payment Loans
Some state and local governments offer deferred payment loans to low-to-moderate income homeowners. These can usually be used for specific home repairs and modifications. In California, the CalHome program distributes money through local agencies.
There are programs for property tax deferral although many state and county governments have suspended them since the economic crisis began. These were generally available to seniors and/or handicapped homeowners and deferred the property tax bills until the home was sold.
After evaluation some homeowners and/or their families will come to the conclusion that a reverse mortgage is the best option to give them extra funds during retirement. It is recommended to put off getting this type of loan until needed to reduce the interest rate charged and qualify for larger advances.
Would you recommend a reverse mortgage to your senior friends and family?
Photo Credit: bgilliard
Downsizing is a really natural alternative to a reverse mortgage since many seniors no longer have the energy, strength or mobility to keep up with maintenance, yard work etc. Most houses are designed with stairs and tubs with high lips and lack grab rails, handles and other safety features. This becomes an increasingly important issue as people age an loose mobility. Down sizing can solve both financial and accessibility issues at once.
I agree. My husband and I bought our condo knowing it is not our forever home but a stage in-between a larger single family home and our retirement home.
I would not recommend a reverse mortgage. My father has had some recent health problems and my mother will lose his pension when he passes. She will need to supplement income so the plan is to use cash that she has and purchase rental property which will provide enough income to cover her expenses. I will manage along with my other rentals and provide her with a steady check. They already downsized to a condo so they don’t have to worry about stairs or yard work.
That’s a great idea. Unfortunately, my in-laws did not have cash to buy property but I really wished he would have downsized to a condo.
Perhaps another choice may be to rent out the home and move to a modest apartment or move in with relatives.
Krantcents, I like that idea. Rent would have easily covered the cost of an apartment.