Reverse Mortgages: A Tool for Aging in Place and Improving Retirement Cash Flow
For many homeowners approaching or already in retirement, there can be an interesting financial contradiction:
They may have substantial wealth—but much of it is tied up in their home.
A homeowner may have spent decades paying down a mortgage and building equity, yet find that monthly cash flow becomes increasingly important in retirement.
That’s where a Home Equity Conversion Mortgage (HECM), commonly called a reverse mortgage, may be worth considering.
What Is a HECM Reverse Mortgage?
A HECM is a federally insured reverse mortgage designed for eligible homeowners age 62 and older.
Unlike a traditional mortgage, a HECM does not require the homeowner to make monthly principal and interest mortgage payments. Instead, it can allow the homeowner to access a portion of the equity accumulated in the home.
The homeowner continues to own and live in the home and remains responsible for property taxes, homeowners insurance, maintenance, and applicable HOA fees.
For the right homeowner, this can change the retirement cash-flow equation considerably.
Using Home Equity to Improve Cash Flow
Consider someone who enters retirement with a $500,000 home and a relatively small remaining mortgage.
They may be financially comfortable overall, but that monthly mortgage payment still competes with everything else in the retirement budget.
A HECM could potentially be used to pay off the existing mortgage, eliminating the required monthly principal and interest payment and improving monthly cash flow.
Depending on the homeowner’s circumstances and how the HECM is structured, home equity may also provide additional financial flexibility—for home improvements, unexpected expenses, or other retirement needs.
The objective isn’t necessarily to spend more. It’s to give the homeowner more options.
Helping Homeowners Age in Place
For many people, retirement planning isn’t just about money. It’s also about where they want to live.
A homeowner may love the neighborhood, know the neighbors, live close to family, and have no desire to move.
But the house may need some work to make staying there practical.
Bathrooms may need to be modified. A first-floor bedroom may make sense. Doorways might need to be widened. Maintenance that was once easy may now need to be outsourced.
Home equity can potentially provide resources to make those changes without requiring the homeowner to sell simply to access the wealth they’ve accumulated.
That’s one reason I think reverse mortgages deserve to be viewed as more than just another loan product. They can be part of an aging-in-place strategy.
Reverse Mortgages Can Also Be Used to Buy a Home
Here’s something many homeowners—and even some real estate professionals—don’t realize:
A HECM can also be used to purchase a new primary residence.
Suppose someone wants to sell the two-story home where they raised their family and purchase a smaller one-level home closer to their children.
They could pay cash for the new home. They could obtain a traditional mortgage. Or, depending on their circumstances, they may be able to use a HECM for Purchase, combining their own funds with reverse-mortgage financing.
That may allow them to purchase the home without putting as much of their available cash into the property while having no required monthly principal and interest mortgage payment.
For some buyers, that creates a very different way to think about downsizing, relocating, or buying a home better suited for the next stage of life.
A Reverse Mortgage Isn’t Right for Everyone
I don’t believe in starting with a loan program and trying to make someone’s situation fit it.
Start with the homeowner. Then determine which financial solution makes the most sense.
A reverse mortgage generally should not be viewed as a short-term financial fix. It is a longer-term decision involving your home, your equity, your future housing plans, and potentially your estate.
Sometimes, a reverse mortgage simply isn’t the best answer.
If the goal is to access a relatively small amount of equity for a short period, a traditional home equity loan, HELOC, or another financing strategy may be a better—and potentially less expensive—solution.
Someone planning to sell the home in the near future may also find that a HECM doesn’t make financial sense.
That’s why the decision shouldn’t be made in isolation.
Your home may be one of your largest financial assets. Treat decisions about its equity with the same care you’d give your retirement investments.
Talk with the financial professionals you trust. Depending on your circumstances, that might include your financial advisor, CPA, estate-planning attorney, and an experienced mortgage professional.
Understand the costs, benefits, alternatives, and long-term implications before deciding.A HECM has costs and requirements that need to be understood. The loan balance generally increases over time as interest and applicable charges accrue, which can reduce the equity eventually remaining in the property.
Borrowers must also meet eligibility requirements, complete required counseling, occupy the property as their principal residence, and continue meeting their obligations for taxes, insurance, and property maintenance.
For the right homeowner, a HECM can be a valuable planning tool.
The goal isn’t to get a reverse mortgage. The goal is to make the best financial decision for the life you want to live.
Your Home Is Part of Your Financial Plan
We often talk about retirement assets as 401(k)s, IRAs, savings, and investments.
For many Americans, however, their home represents a significant portion of their net worth.
That doesn’t automatically mean they should borrow against it.
But it does mean the equity shouldn’t be ignored when evaluating their financial options.
The question isn’t:
“Should everyone get a reverse mortgage?”
The better question is:
“Could the equity I’ve built in my home help me live the retirement I want?”
That’s a conversation worth having.
If you or a family member is 62 or older and would like to understand how a HECM might fit into your overall housing and retirement strategy, contact the Cantor Team Home Loans. We’ll help you look at the numbers, understand the alternatives and trade-offs, and determine whether it makes sense for you.
Paul Cantor
Cantor Team Home Loans
TrustMor Mortgage Company
NMLS #49523 | Equal Housing Lender
This information is for educational purposes and is not a commitment to lend. HECM borrowers must meet applicable eligibility and counseling requirements and remain responsible for property taxes, homeowners insurance, property maintenance, and applicable homeowners association fees.
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