Senior Homeowners – Different Needs

As we grow older, our housing needs change markedly. Throughout our lives, we may have been searching for more space, a larger home, more prestige, a better neighborhood, or the best schools. At some point, our priorities shift and these issues aren’t as important as they once had been. We begin to concern ourselves with more manageable space, security, both from a safety as well as a financial perspective. Concerns about maintenance and costs become more acute. At this point, we become more interested in being able to provide ourselves with sensible, affordable housing and less interested in making a statement.

The changes are often profound and the options are confusing. Emotions run the gamut from frightened to anxious, and regret to excitement. It can be an interesting time, full of adventure and hope, but there are pitfalls of which to be aware. Let’s consider some of the scenarios in which you might find yourself.

Perhaps the home is just too large. The kids are grown and gone, and you just don’t need that big rambler any more. Under these circumstances, selling the current home and purchasing another, smaller home, may be the way to go. This is often where emotions run rampant. Everywhere you look there are memories, and your memories are the greatest contributor to procrastination in this process. You want to make the move, and you need to make the move, but you just can’t. How can you leave the home that has been such a part of you for so long? Well, this is not a personal advice column, so I won’t get into the psychology of what’s happening here. I’ll just consider the practical. You have to first ask yourself, why you are selling, decide to do it and carry through. Try to take a business approach to it if you can.

If the need is financial, you really only make matters worse by delaying. In the past, most folks thought that the only way to improve the financial condition was to sell the property and invest the equity in some kind of investment that would return enough cash to supplement your, usually, fixed income. So, for instance, you sell your $150,000 home and after paying expenses (and hopefully by this time there is no mortgage), you invest the $139,000 in something paying an 8 percent return and realize the added income is $11,120 per year, which is $927 per month. This doesn’t sound bad, until you consider that before you sold your home you weren’t paying rent. Now that your house is gone, that $927 must accomplish two things: provide the supplemental income you were looking for and pay the rent. So, let’s say you find a nice little apartment for $700 a month; you will have $227 to supplement your income. Maybe that works for you, or maybe you are saying, “You mean I gave up my home for $227!” Now, don’t misunderstand what I’m saying, because that might be exactly what you wanted, but if not, there is another option.

You’ve probably heard people talking about reverse mortgages. This is a means through which you can obtain some supplemental income and still remain in your home. Reverse mortgage calculations are complicated and are based upon several variables, so it isn’t possible for me to calculate your payment here. I would suggest you find a knowledgeable professional specializing in this type of loan. I can, however, give you a thumb nail description of the benefits and pitfalls. The concept is really very simple, rather than the traditional form of a mortgage, in which the bank lends you a large chunk of money and you make monthly payment to extinguish the debt. The reverse mortgage lender makes monthly payments to you, and you are under no obligation to repay the loan, as long as you are alive and haven’t sold the house. Could you come to the end of your payments? Yes, but the calculations are designed to avoid that eventuality. Let me explain, and remember, this is a very crude example and the calculation may resemble nothing like your situation. But, the example will illustrate how the thing works.

Let say you own your home free and clear, and it is valued at $200,000. Based on your current age and actuarial tables, and other dark stuff I don’t wish to get into here, it is determined that the lender will lend you 60 percent of your equity. So, you have an account established for you worth $120,000. And, based upon that same dark stuff, it will be determined what monthly payment will be offered to you. The more equity you have, and the older you are at the time, the larger the monthly payment.

Further, it is possible to establish a line of credit, so that you are not receiving any funds until you feel you need to take them, at which time you draw down on your balance. So, let’s say your current income is sufficient to sustain you, but you just don’t have enough left over to pay your property taxes. By doing a reverse mortgage, with the line of credit option, each year you will draw just enough to pay your taxes.

You may also have the option to take a combination of both monthly payments and line of credit, if that suits you best. The reverse mortgage is really a very flexible product and could just be exactly what you need to live in comfort. The one primary caution I would point out is to watch the mortgage broker’s costs. Compare several estimates to make certain you are not being overcharged.

It is important at this point to mention that the National Association of Realtors has developed a professional designation for Realtors, who would like to specialize in the housing needs of Senior Citizens. Realtors, who have earned the Senior Real Estate Specialist (SRES) designation, have committed to a course of study to acquire knowledge and understanding of the special needs of this group. Realtors who hold this designation can be located on the SRES web site at www.seniorrealestate.com.

Gary Straub is an independent real estate consultant and real estate professional for 36 years.