DOWN SIZING WITH A REVERSE MORTGAGE – A RETIREMENT TOOL

Ask your self these "Age in Place" questions



Considering a reverse mortgage? Here are some questions to ask your self first. It is quoted time and time again that over 95% of seniors want to live the duration of their retirement years in their own homes. Prudent consumers will do their research on programs, costs and numbers. If you are looking at using a reverse mortgage to improve and enhance your retirement lifestyle, ask yourself a few questions before you consider a reverse mortgage program.

  1. Is this the house I plan on staying in for the rest of my life?
  2. Is this a house that I can afford to stay in the rest of my life?
  3. Can I easily pay for my property taxes, insurance and association dues
  4. Will I need a new roof, painting or new furnace and do I have the funds for this?
  5. Can I maintain my home myself or do I have the resources to have my home maintained for me?
  6. If I don’t have the financial means to pay for these things when I either don’t want to or can’t do them, do I have the reliable family or friends that are willing to help me as I age?
  7. Do I have the emotional, physical & financial resources to stay in this particular house?
  8. Are my bedrooms upstairs? If I am injured or have arthritic knees, will I be able to move about my house safely?
  9. Do I have more house than I really want?
  10. Would it make sense for me to downsize?
  11. Would it make sense for me to move closer to my son or daughter?
  12. Would I be better off if I sold my home, added my profits to my retirement resources and buy a smaller home with a reverse mortgage?

Downsizing examples for Mr. & Mrs. Anderson and Mr. & Mrs. Jones

Mr. & Mrs. Anderson are both ages 68. The Andersons own a home valued at $700k and they owe $220k. After commissions, closing costs, mortgage payoff & moving etc. the Andersons retain an estimated $430,000 from their sale. Instead of paying cash for their new retirement home, the Andersons can:

A. Purchase a $430,000 home with a reverse mortgage by putting down a one time payment of $180,000 and have no house payments for the life of their loan. They take the balance from the sale of $250,000 as principal residence tax exempted proceeds to use for retirement resources. (Internal Revenue Code 121 principal residence sale tax exemption; consult your tax advisor to also calculate any capital gain taxes).

Or

B. Purchase a $430,000 home with the cash proceeds from the sale and then take out a reverse mortgage, qualifying for $250,000. They can either set up a credit line or have a monthly payment (or both) that is liquid and tax free. The unused portion of the credit line grows at the same rate as the loan rate.

Mr. & Mrs. Jones are both ages 68. The Jones’s own a home valued at $420k and they owe $40k. After commissions, closing costs, moving etc. the Andersons retain an estimated $350,000 from their sale. Instead of paying cash for their new retirement home, the Andersons can:

A. Purchase a $300,000 home with a reverse mortgage, put down a one time payment of $120,000 and have no house payment for the life of their loan They take the balance from the sale of $230,000 as principal residence tax exempted proceeds to use for retirement resources. (Internal Revenue Code 121 principal residence sale tax exemption; consult your tax advisor and to also calculate any capital gain taxes).

Or

B. Purchase a $300,000 home with the cash proceeds from the sale and then take out a reverse mortgage, qualifying for $180,000. They can either set up a credit line or have a monthly payment (or both) that is liquid and tax free when accessed. The unused portion of the credit line grows at the same rate as the loan rate.