Elder homeowners might want to consider reverse mortgage alternatives
Reverse mortgages may very well be a good choice for some seniors who need to tap into equity they have in their homes. But there are other options elder owners might also want to consider.
For example, some state and local governments offer a less costly version of a reverse mortgage called a deferred payment loan (DPL). Generally, there are no origination fees and insurance premiums, and closing costs, if any, are very low.
The interest rate on DPLs is low as well, if interest is charged at all. When it is, it’s often on a fixed basis, meaning that the rate never changes. Better yet, many programs charge simple rather than compound interest, so interest isn’t charged on interest. Some even forgive part or the entire loan if the owner remains in the house for a specified period of time.
King County, Wash., offers loans of up to $25,000 at zero interest. No payments are required, and the loan needn’t be paid back until the house is sold, transferred to a new owner or is no longer your primary residence. Bloomington, Minn., offers loans of up to $35,000 at 5% a year, but with no payments until the place is sold, refinanced or conveyed to someone else.
Typically, seniors can use deferred payment loans only to make specific types of repairs or home improvements such as roofing and heating. But many will cover accessibility modifications such as ramps, rails and grab bars, and energy-efficiency improvements such as storm windows, insulation and weatherstripping.
DPLs aren’t available everywhere, and eligibility rules vary. Most are limited to homeowners with low or moderate incomes. And many place a limit on the home’s value and are confined to certain areas. Some have a minimum-age or disability requirement.
Deferred payment loans go by many different names, so they may be difficult to find. Contact your city or county housing department, area agency or county office on aging, or the nearest community action or community development agency. Also try your state housing finance agency.
Another public sector version of the reverse mortgage is known as a property tax deferral (PTD) loan. Generally, it provides annual advances that can be used only to pay your property taxes or a portion thereof. But no repayment is required for as long as you live in the house.
In some places, property tax deferral loans are offered on a uniform, statewide basis. But in many others, they are available only in some areas, and they vary from area to area. Eligibility rules also sometimes differ from place to place, but most programs have a minimum-age requirement of 65 and are limited to owners with low or moderate incomes.
In Cook County, Ill., the income limit is $50,000, and you must have lived in the house for at least three years. In Wisconsin, the income limit is $20,000, but the residency requirement is just six months.
To find out if your state offers PTDs, contact the agency to which you pay taxes.
Seniors also may be eligible for monthly Supplemental Security Income (SSI) benefits if their liquid resources (cash and savings) are less than $3,000 for a couple or $2,000 for an individual.
Your home and car do not count as resources under SSI, but your monthly unearned income cannot exceed $924 for a couple or $623 for an individual. Income limits are higher if you earn income from a job or live in a state that supplements SSI.
If you qualify for Supplemental Security Income, you might automatically qualify for other public benefits that may allow you to postpone the need for a reverse mortgage. That way, if you do take out a reverse loan later, you may be able to receive larger advances because you will be older and the value of your house may have increased.
Also, by waiting, interest charges will eat less of your home’s equity. At the same time, though, you could jeopardize your public benefits by getting more cash than you need from a reverse mortgage because money in a checking or savings account at the end of a month is counted as an asset.
The National Council on Aging sponsors a website at https://www.benefitscheckup.org that will locate public benefits programs that may pay for some of your prescription drugs, healthcare, utilities and other essentials. The one-stop site also explains how to apply for the more than 1,150 programs available in all 50 states and the District of Columbia.
If you don’t qualify for a reverse mortgage, or the proceeds aren’t enough for you to live on, here are some other housing options you might want to consider:
• Accessory apartments. Many elderly owners bought homes years ago when they needed space to raise young families. Now, even though their houses are too big and too costly, they don’t want to move. But by turning a section or a floor into an apartment, they can bring in extra money, gain companionship or get help with household chores.
Sometimes known as “in-law suites,” accessory apartments are separate, private living quarters contained within a larger home. They contain at least a mini-kitchen and a bathroom, and sometimes have their own private entry.
The feasibility of such an arrangement often depends on the cost of modifying your house.
• ECHO cottages. An arm’s-length version of accessory apartments, elder cottage housing opportunities are small, separate units added in the side or backyard of a single-family house owned by your adult child or perhaps another loved one. That way, you can live near someone but not “with” them.
Unfortunately, many zoning ordinances do not allow elder cottages or allow for a variance only for occupants age 55 or over. Contact your local zoning office to find out if they are permitted. If not, try applying for a special-use permit, and solicit the aid of your local agencies on aging, senior centers or other groups with an interest in older persons.
• Sharing. You don’t need to be just starting out to benefit from having a roommate. Sharing a dwelling is for seniors too.
These kind of arrangements never change. Occupants have their own private, personal spaces such asa bathroom and bedroom but share common areas such as the kitchen, living room, dining area and so on. Still, having a roommate isn’t for everyone, especially elderly people who can be set in their ways. So you should weigh the pros and cons carefully, the National Shared Housing Resource Center warns.
Distributed by United Feature Syndicate.