Reverse mortgage income can give retirees peace of mind

Mortgage » Reverse Mortgage »

Leaning on eachother, outside © Syda Productions/

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 some, a treasure trove of unforgettable years to come.

But with nearly two-thirds of a married couple's assets tied to their home, many baby boomers question just how golden those memories will be. A reverse mortgage loan is one option that may deserve close consideration as retirement needs grow and savings and Social Security plans may not be enough to retire on comfortably and with confidence.

This is according to Jamie Hopkins, an associate professor of taxation at The American College in the Retirement Income Program, who also believes too many older Americans don't consider home equity as a potential source of income for their retirement.

In fact, Hopkins' most recent research concerning home equity and retirement planning literacy revealed that while 83 percent of participants showed a desire to stay in their current homes, less than half -- 44 percent -- considered using home equity as a retirement income tool, and only 14 percent of respondents considered a reverse mortgage loan as a means to tap home equity to help supplement their income.

Couple these statistics with the fact that many older Americans don't adequately plan for long-term care needs, and it's clear that baby boomers will be faced with tough financial decisions as they reach retirement age. 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. Most reverse mortgage loans are Home Equity Conversion Mortgages (HECMs) and are insured by the FHA. A reverse mortgage can help pay for in-home services including health care, cleaning and repairs.

With a reverse mortgage loan the homeowner no longer needs to make monthly mortgage payments for as long as the home is the borrower's primary residence and continues to pay for property taxes, homeowners' insurance, home maintenance and otherwise meets the loan's terms.

This is just the tool Robert Loya was looking for to help fund his mother's in-home care. Robert, who held his mother Mary's medical and financial powers of attorney, was committed to helping his mom live out her days as she wished -- in the home that held so many dear memories for her. Robert said, "Mom dedicated her life to raising us kids in a house full of love. I figured it was our time to repay the favor."

A married homemaker who was devoted to raising her two children, Mary created a sanctuary for her family in their Downey, California, home. Once the kids were older and more independent, Mary entered the working world as a school aide to help Spanish-speaking children learn English. She eventually moved on to become elected to the local school board.

"Her terms on the school board were a real source of pride for my family. Through her example, my mom showed us that anything can be achieved with hard work and determination. It was really something else," said Robert.

As Mary began to age, she was more adamant about aging in place in the family home. But achieving that would require some out-of-the-box thinking on Robert's part.

Robert continued, "As Mom got older, we brought in-home caregivers to assist her with her mobility and hearing issues. And let me tell you, in-home care is very expensive. We had already gone through some of my savings, some of my mom's savings and her investments, and we were committed to continue this care at home. And then one day I saw a reverse mortgage commercial on television, and we decided to look into it more as an option. We wanted to work with a lender that would take care of us."

According to the "Cost of Care Survey," an annual report by Genworth, in-home care costs less than adult day care, skilled nursing services and assisted living. In fact, in-home care averages about $45,760 per year nationally, while a private room in a skilled nursing home costs $92,378 per year, on average. In addition, over the past five years, the costs for assisted living and skilled nursing have risen by four percent.

While the costs of long-term care can be staggering, older Americans may be apprehensive about using a reverse mortgage loan as a means to pay for these costs. But 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 rate and fees involved with this," explains Hopkins.

This is good news for the almost 80 million baby boomers likely to retire through 2030 (Pew Research Center). According to recent data from the National Reverse Mortgage Lenders Association (NRMLA), older Americans now hold nearly $6 trillion in untapped home equity -- more than most other assets they've saved. With Social Security, workplace retirement plans and personal savings not always being enough to live comfortably, baby boomers will likely need to start considering reverse mortgages as they near retirement.

Many financial experts recommend using what's called a "reverse mortgage growing line of credit," which can be used as a standby source of funds to use when emergencies, including health-related challenges, arise. A reverse mortgage line of credit can also help older Americans avoid tapping other investments and assets when unexpected expenditures come up. 

Whether homeowners decide to receive their proceeds in the form of a lump sum, in monthly payments, as a line of credit, or a combination of these 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 advisers to ensure they work with a reputable lender that can ensure their assets are protected.

In the case of Robert's mother and their family, the choice was easy to make. Robert's mother died last year, but Robert and his family are grateful for their decision to take out a reverse mortgage loan 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 realized how much the reverse mortgage helped us give Mom her wish of staying in her home until she passed," continued Robert. "We believe she lived longer by being able to stay in her home and receive the round-the-clock care she needed. For us, the reverse mortgage was a real blessing."


Connect with us