Most peoples’ single biggest asset is their home, a comforting thought as we age. But figuring out how to handle the financial side of the housing issue may be one of the knottier questions retirees face.
The options can seem daunting. Is a reverse mortgage right? What about renting? Am I too old to take out a mortgage on a new condominium? What if I die and leave a big mortgage? The list goes on and on.
According to consultant John Tuccillo, the search for the right financial option can be simplified as long as you know your goals.
“Clearly, you are not going to make the right move unless you know what kind of retirement you want,” said Tuccillo of JTA LLC, a consulting firm based in Arlington, Va.
Tuccillo suggests examining your objectives. Decide if you want to be close to your family. Maybe you would prefer to live in a different place, say, a warm climate. Some people want to stay in their current house no matter what the cost.
“It really comes down to asking: `What do you want to do when you grow up?’ Once you get that piece of information in your head, then everything falls out a little easier,” said Tuccillo, former chief economist at the National Association of Realtors.
If you have your heart set on staying in your long-term residence, a reverse annuity mortgage may make sense. The reverse mortgage lets you tap the built-up equity in your house. In short, instead of you paying the bank, the bank pays you.
Tuccillo thinks this option is best for someone who needs to supplement his or her income, but wants to stay put. The only downside, he says, is that your estate will be smaller when you die, because the bank will own at least a portion of the house.
If you are still young, 50 or so, Tuccillo suggests refinancing a 30-year mortgage to a 15-year term. The plan makes sense especially for those who plan to sell their homes upon retirement and move.
“You will have maximized your equity by the time you are 65 and want to retire,” he said.
Though monthly payments are higher on 15-year mortgages, Tuccillo considers it like a forced savings plan.
“You are denying yourself now for the sake of later,” he said.
Though most people don’t like the idea of taking out a mortgage when they get old, it’s the right option in some situations. But unlike middle-agers who should consider the short-term mortgage, seniors should stretch out the term. Tuccillo advises getting a fixed rate, 30-year mortgage.
“No matter who you are, in retirement you are on a fixed income. When you are on a fixed income you want the lowest possible fixed expenses,” Tuccillo said.
Theoretically, getting a mortgage as a senior is no different from when you were younger. Banks look at your ability to pay, the value of the property and your down payment.
Tuccillo cautions seniors who get a mortgage that when the estate is settled there will be less equity in the house to pass on to their heirs.
“If that fits your plan, it’s fine,” he said.
Many retirees like to avoid debt and therefore pay cash for a property. But Tuccillo points out that seniors often take on debt unknowingly in the form of fees, usually condominium association dues. The big thing to determine is your monthly cost.
“You have to fit the financing part into your retirement plan. You can’t do it the other way around and fit the plan into the financing,” Tuccillo said.
Resources
– John Tuccillo has authored a book, along with Buddy and Betsy West, called “Targeting the Over-55 Client” (Dearborn Financial Publishing, 1999).
The book is meant for real estate agents working with older home buyers and sellers, but it has a good resource list in the appendix of reverse mortgage lenders by state. It also includes a list of state agencies on housing and aging.
– According to a survey from the Washington, D.C.-based National Association of Home Builders, Nevada will be the country’s most popular seniors housing market for the next eight years. The survey, which used census data, looked at which states had the most appeal for seniors.
Nevada came out on top for 1999 to 2006. Florida ranked second. Arizona was third and Arkansas fourth. Illinois ranked 49th.
– Construction of model homes has begun at Carillon North, an active adult community by Cambridge Homes in far north suburban Grayslake. Eight of the 12 home designs are being built as fully furnished models, including five town homes and three single-family residences.
Carillon North will have 368 homes, priced from $153,990 to $227,990. The homes should be complete this May.
Until then, potential buyers can get information at the design center in Cambridge Plaza, 832 S. Milwaukee Ave., Libertyville. Or call, 847-223-9999.
– There’s plenty of information available on reverse mortgages.
For starters, try the American Association of Retired Persons (AARP) at 202-434-6042. It has a very detailed packet of free information on reverse mortgages. For $5, you can get an AARP video that gives a simple introduction to the topic.
The National Center for Home Equity Conversion in Minnesota, at 612-953-4464, has a free lender locator guide and free brochures.
Fannie Mae’s public information office has free brochures, including, “Money From Home: A Consumer’s Guide to Home Equity Conversion Mortgages” and “The Home Keeper: It Pays to Keep You in Your Home.” Phone: 800-732-6643.
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Jane Adler is a Chicago-area freelance writer. If you have questions or information to share regarding housing for senior citizens, write to Senior Housing c/o Chicago Tribune Real Estate Section, 435 N. Michigan Ave., Chicago, IL 60611. Or e-mail adler@megsinet.net
