Tap into your home’s equity

Eliz abeth Morse Read

We all want to stay in our home, living independently, for as long as possible as we age. But at some point, our financial costs will outstrip our financial resources. Can we afford increasing expenses as time goes on, whether they be medical bills, rising taxes, or an emergency home repair, on a fixed income?

As many as one third of US households have very little – or nothing – saved for retirement. And the remaining two-thirds have saved an average of only $73,200, which will not go far, even when supplemented by Social Security checks and pension funds. It’s time to look into tapping into your home’s equity as a way to secure your financial future. Aging in lace Many people don’t realize it, but your home equity may represent 60-80% of your overall retirement assets. Home equity is the difference between the appraised value of your home minus what you owe on any mortgages. If you’re still living in the home where your children grew up, it might be time to downsize and sell your home, or else consider finding someone to live in with you and share the expenses. You could also consider any number of home equity financial products, such as a Home Equity Loan, a Home Equity Line of Credit (HELOC) or a Home Equity Conversion Mortgage (HECM), which is more commonly known as a “reverse mortgage.” There are pros and cons associated with each product, so you need to consider and compare those options carefully. Home Equity Loans and HELOCs taken out for cash-flow problems are risky – if your health declines (and your expenses go up), keeping up with monthly loan payments can become more than you can handle.

If you’ve lived in your home for many years, it may well be worth much more than what you originally paid for it, or else you might have almost paid off the original mortgage. Borrowing against that equity would give you extra cash to keep up the maintenance of your home, help you pay for day-to-day expenses and emergencies, and put enough

money aside to cover property taxes and home insurance. It can be an emotional decision to sell your home or to borrow against the equity, but it must always be balanced with the reality that you may not be able to afford staying in the home if you run out of funds. Discuss it with your adult children – they may well prefer receiving a smaller inheritance if it means that you’d be able to live independently in your home as you get older. Revie yourfinancial situation

It’s important that you consult with a trusted financial advisor and your heirs before you make any decisions about your home – and no decisions should ever be made when you’re facing a sudden financial crisis. There are always other resources you can tap into to get over a financial emergency – help from your family, cashing in

stocks, selling valuables or other properties, investigating whether you’re eligible for property tax relief. But if you’re prudent, have a good credit history and are thinking long term, consider the possible benefits of a reverse mortgage. Prosandconsof reversemortgages They’re called “reverse” mortgages because the lender pays you, not the other way around as with a conventional mortgage. The money you receive from a reverse mortgage is tax-free, does not affect Social Security is an agency within the US Department of Housing and Urban Development (HUD). The maximum amount of money available (the “principal limit”) is based on the appraised value of the home, the age of the youngest borrower (a spouse or adult child 62 years old or older who lives with you), and the interest rate offered. You can access the remaining funds in several ways (or in a combination of the different ways): a line of credit, fixed monthly payments, or a lump sum to be used to pay off an existing mortgage or some other

The money you receive from a reverse mortgage is tax-free, does not affect Social Security or Medicare benefits, can be used for any purpose, and you are not required to make any monthly payments for as long as you live in the home.

or Medicare benefits, can be used for any purpose, and you are not required to make any monthly payments for as long as you live in the home. The loan isn’t repaid until you leave the home, either because you’ve sold it, you die, or you need to move to more suitable living circumstances, at which time your heirs can either take out a new mortgage or sell the property to pay off the loan.

Ninety-five percent of reverse mortgages are governmentinsured Home Equity Conversion Mortgages (HECMs). Whether offered by a bank or another lending institution, HECMs are administered by the Federal Housing Administration (FHA), which mandatory obligation. You may be limited, in the first year, to borrowing no more than 60% of the loan amount. Just as with a traditional mortgage, there are closing costs with a reverse mortgage, but there is an additional cost of a mortgage insurance premium that covers FHA insurance (2% of the appraised value of your home). This mortgage insurance protects you in case of a lender failure and assures you and your heirs that you will never have to pay back more than what the house is worth. Also, unlike conventional mortgage closing costs, reverse mortgage closing costs are not

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tax-deductible until the loan is paid off.

Other differences when applying for a reverse mortgage is that you will not be considered if you are in default on any federal loans – such as student loans. Also, you must meet with a HUD-approved reverse mortgage counselor before a loan application can be processed. This insures that you will receive impartial advice from someone who will not profit from the loan.

The most important qualification for anyone who wants to apply for a reverse mortgage is their ability to pay for their real estate taxes, home insurance, and maintenance of the property for as long as they live in the home. Failure to do so would result in foreclosure, although some allowances can be arranged in certain cases. The home must remain the primary residence, and absences of no more than insurance, and keep the home well maintained, you can never lose ownership of your home. Additionally, there are no monthly payments, your adjustable-rate loan interest is capped to no more than a 5% increase over the original rate, there is no time limit on how long you keep the loan before you have to pay it off, as long as you live in the home, and you would never have to pay back more than the amount of the original loan upon sale, thanks to the FHA mortgage insurance – indeed, if the home’s value upon sale is larger than the original loan, the excess amount is yours free and clear. Ne changesto reversemortgages When reverse mortgages first became popular, there were many nightmare stories of early foreclosure, poor money management, and less-thanhonest lenders who misled

There is no time limit on how long you keep the loan before you have to pay it off, as long as you live in the home, and you would never have to pay back more than the amount of the original loan upon sale

six consecutive months a year, whether for short-term medical rehabilitation or time spent in a vacation home, are allowed. But if you leave the home for more than a year, then you will need to repay the loan in full, usually by selling the house.

But there are many advantages to refinancing your home with a reverse mortgage. So long as you pay your property taxes, home older consumers. Indeed, the Consumer Finance Protection Bureau (CFPB) fined three reverse mortgage companies in 2016 for alleged false claims, and in 2008, AAG (Tom Selleck does their TV commercials now) was kicked out of the Massachusetts market for falsely marketing reverse mortgages as a government benefits program and claiming that consumers couldn’t lose their homes to foreclosure

with a reverse mortgage. Consumers can indeed lose their homes to foreclosure with a reverse mortgage – also provide a much simpler solution for older couples undergoing a divorce (aka, a “gray divorce”), where the

The government has tightened regulations and demanded additional financial safeguards to make sure that qualifying seniors are being presented with viable financial choices and honest guidance

between 2009 and 2016, 18% of reverse mortgages taken out defaulted due to unpaid property taxes and home insurance, compared with only 3% of federally-insured traditional mortgage loans. But the government has tightened regulations and demanded additional financial safeguards to make sure that qualifying seniors could be assured that they are being presented with viable financial choices and honest guidance about their financial futures.

Protection for surviving spouses who didn’t sign the reverse mortgage loan have been made stronger, reducing the chance of them defaulting and facing foreclosure. Additionally, reverse mortgages are now much easier for single-unit condominium owners to obtain. Many seniors choose this living arrangement when they downsize, but previously found they had to jump through too many legal hoops to qualify for a reverse mortgage if the entire condominium project was not FHA-approved. Also, certain mobile homes are now eligible for reverse mortgages.

A reverse mortgage can family home would normally be sold to split the proceeds between the divorcing couple. In most divorce cases, one spouse remains in the home and “buys out” the departing spouse, creating a cash-flow nightmare for the one who stays in the home. A reverse mortgage allows the remaining spouse to cash out roughly half of the home’s value to pay off the departing spouse, allowing them to age in place without making monthly mortgage payments.

In an ideal world, you should be able to retire and live comfortably on your Social Security benefits, a pension, and your savings. But you shouldn’t overlook the potential bounty of your biggest asset – your home’s equity. Consider a reverse mortgage as part of a sound long-term financial plan – but not as a crisis management tool.

ElizabethMorseRead is an award-winning writer, editor and artist who grew up on the South Coast. After 20 years of working in New York City and traveling the world, she came back home with her children and lives in Fairhaven.

Forty-three year old Cheryl Boles of Bridgewater MA began rapidly losing her vision a few years ago. Her optometrist referred her to Dr. C. Steven Foster and his team at the world renowned Massachusetts Eye Research and Surgery Institute (MERSI). The diagnosis: an autoimmune disease called Autoimmune Retinopathy (AIR) - a disease so rare and poorly understood that it has no known cure. Her body’s own immune system was attacking the proteins in her retinas and optic nerves, destroying the rods and cones, and leading to more and more vision loss.

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