The economy has suffered in the past few years and the housing market was especially hard hit. Senior homeowners may have felt the brunt of the housing crisis as early retirement threatened mortgage payments and years of built up equity diminished with the falling home prices. As the market recovers many homeowners are seeking answers about how to best recover their financial resources as they continue into retirement. This is particularly important since a report by The 2014 Consumer Financial Literacy Survey shows that approximately a third of American adults do not save anything for retirement.1
The following is taken from a question and answer session provided by mortgage resource HSH.com2 and features Dr. Harold R. Christensen, professor of economics at the Centenary College of Louisiana, and Dr. Michael J. McNamara, field distinguished professor of insurance at Washington State University. Throughout the session, each professor answers questions regarding the best financial strategies for retired and soon to be retired homeowners.
“Question: What are the best ways that a senior can use their home to help fund retirement? Is a reverse mortgage a viable product?”
Dr. Harold R. Christensen, Ph.D.
Answer: “For many retirees, home equity represents the largest asset that is held. However, they quickly realize that a house is not as liquid as a savings account, investment portfolio, or even an IRA. In many cases, equity can be liquidated by refinancing. The advantage of refinancing is that there may be a tax advantage in the payment of mortgage interest; the disadvantage is that payments must be made. For retirees that need a significant amount of cash to repair their home or other expenses and who have the income sufficient to keep up payments, refinancing is a reasonably good strategy.
For retirees that own their home but do not have the income to make regular payments (thus removing refinancing as an easy alternative), a reverse mortgage may provide the needed relief.…Title remains with the homeowner and in most cases the existence of the mortgage does not impact Social Security or Medicare.…Reverse mortgages are also able to make monthly payments, serve as a line of credit, or make a lump sum payment. At death, the loan becomes due and becomes an obligation of the estate, so the heirs need to recognize what is involved.
In conclusion, a reverse mortgage is a viable product to assist in funding retirement.”
Dr. Michael J. McNamara, Ph.D.
Answer: “A reverse mortgage can be used by retirees who want to continue to live in their home. There’s no ‘one-size-fits-all’ solution for using home equity to assist with retirement. For some people, a reverse mortgage makes sense. However, some retirees prefer not to have the responsibilities that come along with ownership – painting walls, shoveling sidewalks, dealing with clogged pipes, etc. Some retirees may not have much equity in their home. In addition, some retirees may no longer be able to live in their homes because of care needs (e.g. assisted living or rest home care).”
If you are interested in learning more about a reverse mortgage, contact a reverse mortgage advisor at 800.976.6211