Financial Alternatives for Seniors
Some of the letters that we receive offer insights into seniors’ decision-making processes as they are considering their future finances.
“My husband and I are trying to decide how to proceed with our financial planning for our senior years. We are both 66 and in good health. My husband draws a pension from the Postal Authority where he worked for 40 years and we have our combined social security payments. We own our own home, which is worth approximately $500,000, and do not carry any type of mortgage. We are able to provide for ourselves and even take small vacations periodically but our children are struggling and we would like to help them, which we cannot do given our present limited income.
We are considering selling our home but, to be honest, don’t really want to uproot ourselves at this point in our lives. We heard that there’s another option that would allow us to draw cash against our home’s equity. What can you tell us?” Lilianne Porter, St. Louis MO
Your dilemma is one that many seniors are facing. They have worked all of their lives towards financial security and they find, in their senior years, that they are struggling.
The Home Equity Conversion Mortgage (HECM), also called a Reverse Mortgage, is an answer that the Federal Housing Administration (FHA), in conjunction with the Office of Housing and Urban Development (HUD) have developed as an option for seniors who want to identify additional financial resources as they live out their senior years.
HECM borrowers own their own home and have either paid off their mortgages entirely or have paid a considerable percentage of their total mortgage. The Reverse Mortgage gives them the opportunity to take out a HECM loan against their home’s equity. In short, borrowers can obtain a sum of money from a lending institution as either a one-time payment, a line of credit or monthly payments. When the borrowers no longer live in the home, the house reverts to the lending institution which can then resell the property and recoup the investment. The Reverse Mortgage is insured by the FHA.
From your description of your situation, it seems that a Reverse Mortgage might be your best option. However, there are several things that you need to remember as you investigate the HECM loan.
First of all, the requirements mandate that you (and any other individuals who are signed onto the home’s deed) are at least 62 years of age. You must own the property outright or have paid a good percentage of the mortgage. You must occupy the property as your principal residence and not be delinquent on any federal debt.
Secondly, the loan carries interest and closing fees. You should shop around and ascertain the options that different FHA-approved lenders offer before you sign with any lender. Oftentimes, if you have a good credit rating, you can negotiate for better loan terms. Additionally, remember that you will continue to be responsible for all property taxes and upkeep costs of the home.
Part of the application process for a Reverse Mortgage includes a mandated counseling session with a HECM-approved counselor. This counselor can provide more information about the loan and the various options as you consider your alternatives.
