Issue 42.15
As our baby boomers continue through their retirement, the Department of Housing and Urban Development or HUD / FHA is projecting that 60% of our retirees over the next decade will need to tap into the equity of their homes as part of their overall retirement.
Let’s try and put that in perspective! As we retire, we are living longer and the cost of living continues to rise. In addition, our investments that are conservatively in funds that limit any risk simply don’t have a lot of interest associated and makes it difficult to have enough funds set aside that will allow you and your spouse to retire comfortably.
HUD states that the concern is not today, but in five or ten years. If we lose one of our spouses, we will most often lose income. We normally lose the lower of our social security checks between the spouses and depending on any retirement, we may lose half of a pension or so forth.
So, the concern is that we are okay in making a mortgage payment today, but what happens in 5 or 10- years, when we lose a spouse and our income drops and we are still obligated for that payment. In addition, our income is lower and the cost of living has risen. It makes for a difficult decision.
To view things in a simplistic way, we either are lucky enough to stay put in the home we are in and be fine during our retirement. But, HUD predicts only 40% of us will be fine and fit into that category. The other 60% will need to make some decisions and have to tap into the equity of their home.
This means three things:
- Selling your home and downsizing. 2. Taking out conventional mortgages and making interest payments on these, and or 3. Looking at reverse mortgage options.
That is it guys, the only options that are available period without leaning on family. So, if we sell a home and downsize are we going to save that much money? Perhaps if you live in a large home that you simply don’t take advantage of that that is a possibility. We live in an area that is fairly inexpensive to maintain a home. Our Utilities and taxes are one of the lower in the country, so are we really saving much money if we down size?
- We can take out a standard equity line and make payments. But, this is really a strange way around a cash flow issue. We take out a lump sum in an equity line against our home and make payments on that line. We have now taken on a debt that if something happens, and we cannot make a payment we have jeopardized our home.
- A reverse mortgage line is the same as option 2 above. You open up a line of credit at the same interest rate as a standard line today and when you need money you can withdrawal. The good aspects of this are because it is a reverse line of credit there is no payments. The interest accrues and is paid back when your heirs sell the home. But, you are not assuming a liability that needs to be paid back between you and your spouse.
There is a reason that 70% of our client’s today that are buying a home or refinancing a home today at the age of 62 or better is looking at the reverse lines. The reverse line of credit has more flexibility without putting your home and or spouse at risk if something happens in the future to one of you.
This decision should be a team decision. Living in southern Utah we have some excellent financial advisors. From the Soltis team to Wyson, Merrill Lynch, Ashton, Eric Scott, Wells Fargo, there are many solid financial advisors. Please consult your options today with a financial advisor or an accountant as well as our team, so we can make a financial plan that is best long term regardless if it is a reverse mortgage or going into another direction.
If you are visiting with a company who only deal with Reverse Mortgages, they cannot look at the situation from all angles. Please visit with a senior mortgage banking firm that involves your advisor or accountant in order to come up with a team decision on what you can do and your options during today’s retirement environment. Until next time. Brandon Hansen.
Brandon Hansen can be reached at 435-673-4773.