There is a Housing Crisis for Retirees: How to Keep Yourself Safe

The aging population is facing a housing crisis in America, and it’s coming fast. Such are the findings of a landmark study and report released by the Harvard Joint Center for Housing Studies and AARP last month. The annual study showed that 1 in 3 people over age 50 in the U.S. were carrying a “severe” or “moderate” housing cost burden in 2012 — a figure that has risen sharply from 1 in 4 people at the turn of the century. Housing costs are considered to be a burden if money spent on housing amounts to more than half of a household’s income in the “severe” case and between 30 and 50% in the moderate situations. “We have a big problem,” said Henry Cisneros, executive chairman at CityView and former Secretary of the Department of Housing and Urban Development, in presenting the study’s findings to members of the public and media. “Many aging Americans don’t have personal savings, and governmental budgets are strapped.” But for those who have paid into their homes over time, even those who are facing housing cost burdens on the upper end of the scale, there are ways for home equity to help in easing the housing crisis in retirement. Downsizing is an option, but for people who wish to stay in their existing home, you might consider the reverse mortgage. What is a Reverse Mortgage — Tapping Your Home Equity A reverse mortgage is a loan that converts home equity into cash, in the form of a lump sum, line of credit or ongoing payments over time. The government-insured Home Equity Conversion Mortgage program offers this option to homeowners who are 62 years of age or older, and who have a substantial amount of home equity. Despite the findings of Harvard and AARP on the crisis many Americans are facing, the research pointed to reverse mortgages as one way to help — especially for those people who are facing a large housing burden relative to the rest of their expenses. “Reverse mortgages can be particularly helpful to lower-income households holding most of their wealth in home equity,” the report finds. “For example, reverse mortgages can be used to convert a portion of housing wealth into an income stream to help cover property taxes and insurance payments, the costs of supportive care and other living expenses.” How a Reverse Mortgage Can Help The Joint Center report points to several benefits of reverse mortgages for households that will face the coming crisis, or that are already in its midst. Reverse mortgages can be used for:

• Ongoing housing-related property charges. These include (but are not limited to) property tax and homeowners insurance.
• Health care costs. A reverse mortgage can assist with in-home care or other health care costs, as they come up.
• Home repairs. A lump sum payment can cover the costs of needed home improvements or modifications, such as those to help you or a spouse age in place.

In fact, reverse mortgage loans can be used in anyway the borrower would like to use them.  However, in 2015, new requirements will be in place that will insure that all property taxes and home owners insurance will be paid — even if that means that borrowers must set aside a portion of their loan amount for those purposes. “Housing is often an older person’s largest single expense,” write researchers at the Boston College Center for Retirement research in response to the study. “And because housing costs are largely fixed (think mortgage payment, taxes, insurance, upkeep and utilities), they can become a growing burden for people as they age and become more vulnerable to reductions in income. Incomes often decline toward the end of their working years and decline again when they enter retirement. Pensions and Social Security benefits fall again when one spouse dies.” Reducing housing expenses — as well as covering health care and property costs — through a reverse mortgage can help homeowners avoid the housing crisis ahead.