Tom Kelly: Many older owners will have to age in place

While aging in place – including home maintenance,
medical costs and property taxes – will be the primary
reason for seniors’ tapping into home equity for decades
to come, there are many other underestimated needs and
wants that will quickly race to the front burner once a
greater number of consumers better understand reverse
mortgages.

In a recent column, we discussed the benefits of
combining Social Security payments, securities portfolios
and a reverse mortgage early into a retirement plan. By
using the reverse to supplement the package during the
life of the plan, researchers showed that a retiree’s
residual net worth (portfolio plus home equity) after 30
years is about twice as likely to be greater when an
active reverse mortgage strategy is used than when the
reverse mortgage is used as a last resort.

A significant percentage of older homeowners, plus
their children – the 79 million baby boomers who are now
asking financial and lifestyle questions for their parents
– will consider a reverse mortgage as a viable opportunity
in their life.

Why? Older people primarily want to stay in their homes
and the cash in their primary residences can help them
stay there so they do not have to move to a retirement
home.

The bigger question becomes what happens if these huge
groups do not stay in their homes, or, age in place? Where
would we put them and how could we possibly fund such
volume? Toss in the idea that people are living 30 years
longer than they did 40 years ago and the potential
shelter/care components become enormous.

More seniors are also figuring out that their kids have
their own homes and don’t need the parents’ home. Those
that do anticipate a child or grandchild’s need are acting
sooner.

There are many people who took out a reverse mortgage
for a specific use other than last minute desperation. For
example, there’s a grandmother in Georgetown, D.C., who
took out a reverse mortgage on her million-dollar home and
gave her two daughters $200,000 apiece so that they could
use the money now “when they needed if for their own
children” instead of getting the cash later in her estate
when the grandkids had grown and moved on.

Or, the senior living near Boston, widowed at a young
age, who got a reverse mortgage to put her daughter
through nursing school.

An Oregon man, still working at age 68, used the cash
from a reverse mortgage to buy a flat-bed truck that would
carry the long sticks of PVC pipe needed for his sprinkler
business.

According to the United States Bureau of the Census and
the National Center for Health statistics, 80 percent of
the older population – persons 65 years of age and older –
own their own homes and 73 percent are owned free and
clear of any mortgages, amounting to nearly $1.9 trillion
in home equity. The biggest concern now is that Mom and
Dad have no equity left in their home because of the down
turn in property values.

However, there are still prime reverse mortgage
candidates who have lived in high-cost major metropolitan
areas for decades who still have plenty of equity to
access and need only a sliver of it to make their lives
more comfortable.

For example, a woman who worked part-time as a ticket-
taker for the Seattle Mariners, relished her position at
the home-plate entry gate. However, like many seniors, she
simply could not make ends meet on her monthly income,
especially when it came time for a major purchase.

“I needed a car,” she said. “I mean, I really needed a
car. I had to have something reliable to get to
work.”

She got a reverse mortgage for $30,000, bought a good
used car and also paid bills. The remainder of the cash
remains in a line of credit that grows at a moderate
interest rate. When a friend tried to poke fun at her for
paying the seemingly high fees to get the $30,000, it
didn’t bother her at all.

“I really didn’t care what it cost,” the woman said. “I
love what I do, and this was the only way I could see to
continue doing it.”

The maximum loan fee on reverse mortgages is 2 percent
on the initial $200,000 of the home’s value and 1 percent
on the balance thereafter, with a cap of $6,000. The fees
seem too high to some, yet a bargain for others.

As the old saying goes “you can tell somebody what
something costs, but you never know what it is worth to
them.”

Tom Kelly’s new E-book “Bargains Beyond the Border: Get Past the
Blood and Drugs: Mexico’s Lower Cost of Living Can Avert a
Tearful Retirement” is available online at Apple’s
iBookstore, Amazon.com, Sony’s Reader Store, Barnes &
Noble, Kobo, Borders Books, Diesel eBook Store, and Google
Editions. It mirrors a recent article by CNN on the
benefits of the country, including increased rental
possibilities.