Homemade Money: A Consumer's Guide to Reverse Mortgages
By: Source: AARP.org Date Posted: 2003-06-19 12:39:00-04:00
Session 2 - Understanding the Alternatives
Making a major financial decision is always scary—especially when the decision involves something as important as your home. And because smart consumers consider all of their options before making any decision, this session examines alternatives to reverse mortgages. By reviewing alternatives first, you may find a better or less expensive way to meet your financial needs; you may find other solutions that can be combined with a reverse mortgage; and you will be better prepared to evaluate the costs and benefits of a reverse mortgage.
Moving on
The thought of selling your home and moving to a new one may not seem very appealing right now. But thinking seriously about this option will help you evaluate the comparative costs and benefits of a reverse mortgage. Begin by answering the following questions:
- How much cash could you get by selling your home?
- What would it cost you to buy (and maintain) or rent a new home?
- How much money could you safely earn on any money left over after you buy a new home?
Before you decide to borrow against your existing home, you should take a thorough look at the other options that are available to you. While you may not have considered renting an apartment, purchasing a less costly home, or moving into an alternative form of housing, these are all options that might prove preferable to a reverse mortgage.
Public benefits
Chances are, your home is the single most important investment you've ever made. You've probably spent much of your adult life making payments on a traditional "forward" mortgage. The idea of utilizing a reverse mortgage to cash in on that long-term investment while remaining in your home may be very appealing.
Keep in mind, though, your home isn't the only long-term investment you've made. For most of your adult life, you've been paying taxes, and those taxes have gone to support a variety of public programs. By learning about and taking advantage of these public benefits now, you may be able to defray your overall financial expenses.
You may qualify for Supplemental Security Income (SSI), a government program that makes monthly cash benefits available to eligible Americans aged 65 or over. (See Additional resources below.) Other public programs can help you defray expensive medical or Medicare costs.
Postpone or combine
By utilizing public benefits to lower your expenses now, you may be able to put off getting a reverse mortgage until some future time. Most likely, this will enable you to get larger loan advances, as you will be older and your home's value probably will have increased.
You also have the option of combining public benefits and a reverse mortgage. The advantage of this combination is that your need for loan advances will be less than if you were not receiving public benefits. By taking smaller loan advances, your total interest charges will be lower, and you will have more equity preserved for use in the future.
One important consideration: if you do get a reverse mortgage, make sure that you don't jeopardize your public benefits by getting larger cash advances than you need. SSI and similar programs count loan proceeds that remain in a checking or savings account at the end of a month as liquid assets. According to the American Bar Association's Reverse Mortgage: A Lawyer's Guide, if your total liquid assets exceed the allowable limits (as of 2002: $2,000 for a single person, $3,000 for a couple), you lose your eligibility. By making sure that your cash advances total roughly what you expect to spend each month, you can ensure that your eligibility remains intact.
Housing Options
There are more housing options for older Americans today than ever before. They include:
Senior retirement communities: These buildings are for residents who are mobile and can take care of themselves. Sometimes meals are available in a central dining room, and housekeeping services may be offered.
Homesharing: At any age, two or more people can share a home or an apartment. Some homeowners seek this arrangement to avoid living alone or to supplement their income.
Continuing care retirement communities: These facilities offer a range of housing options—from independent apartments to assisted living—for older residents.
Assisted living facilities: Assisted living facilities generally provide housing, group meals, personal care and support services, as well as social activities in a residential setting. Some health care may be provided.
Glossary
Supplemental Security Income: A federal program that provides monthly cash payments to Americans aged 65 or older who are low-income, blind or disabled.
Additional Resources
If the various options described here seem a bit overwhelming, don't worry. An array of public and not-for-profit institutions specialize in helping people just like you:
Housing options
American Association of Homes and Services for the Aging (AAHSA)
AAHSA is a national nonprofit organization representing 5,600 not-for-profit nursing homes, continuing care retirement communities, assisted living residences and senior housing facilities and community service organizations for the elderly. Their web site offers information to the consumer, including a list of accredited continuing care retirement communities, tips for choosing an assisted living facility, a sample assisted living resident agreement, and more.
Eldercare Locator
A nationwide information and referral service that helps older adults and their caregivers find local services for seniors. The program, offered by the US Administration on Aging, can help you identify appropriate services in the area where you or your family member resides.
If you want more specific references, however, call the Eldercare Locator to speak to an Information Specialist who has access to a database of more than 4,800 entries. The toll-free Eldercare Locator service operates Monday through Friday, 9:00 a.m. to 8:00 p.m., Eastern time, and can be reached at 1-800-677-1116.
AARP Housing Options for Older People
AARP provides information about housing options for older people who are living independently and for those who need assistance with everyday activities.
Public benefits
AARP Public Benefits Outreach
This program helps people learn about and apply for SSI and a variety of health-care cost programs.
Area Agency on Aging (AAA) or www.aoa.dhhs.gov/aoa/pages/loctrnew.html
The single best source of information about a wide variety of public benefit programs. These agencies can help you find programs in your area from energy assistance to property tax relief. Visit the above web sites to find the AAA nearest you.
BenefitsCheckUp
This free, confidential service from the National Council on Aging uses a questionnaire to identify programs for which you may be eligible.
Social Security Administration
You can find out if you're eligible for SSI by visiting your local Social Security office or calling the Social Security Administration at 1-800-772-1213 (English and Spanish). You can apply over the telephone, and it's best to apply as soon as possible. If your application is approved, your benefits will start the month following the date of the application. For general information and eligibility requirements for individuals, visit Supplemental Security Income.
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