How to Stay in Your Home After Retirement

Where to Start: Budget, Benefits, and Property Tax Relief

The first step costs nothing: an honest look at the numbers. A household budget review lists every source of monthly income. That includes Social Security, any pension, and regular withdrawals from savings. Next it lists the fixed expenses: property taxes, homeowners insurance, utilities, food, health costs and any mortgage payment still owed. Comparing the two shows whether there is a gap, and how large it is.

A gap does not always mean a loan is needed. Some households find benefits they have not claimed. Others find costs that can be lowered.

Property taxes are one place to look. Relief programs for older homeowners generally fall into three categories:

• Exemptions, which lower the taxable value of the home.
• Deferrals, which postpone payment, often until the home is sold.
• Circuit-breaker credits, which reduce the tax when it is high compared with income.

Each state or county sets its own eligibility rules and amounts. The local assessor or tax collector publishes the current figures. The Consumer Financial Protection Bureau notes that state and local programs "may help you defer property taxes, and provide assistance with utilities and home repairs." USA.gov and the federal Administration for Community Living are places to start a search for state and local benefit programs.

A gap in the numbers does not have to mean a loan is the only answer.

Home Modifications and Aging-in-Place Planning

Picture the house five or ten years from now. Would the bedroom stairs, the tub and the front steps still work? Asking that question now is the heart of aging-in-place planning.

Aging in place means choosing to remain in one's own home as health and mobility change, rather than moving to a care facility. The National Institute on Aging says the best time to plan "is before you need a lot of care," because planning ahead allows important decisions while a person is still able to make them.

Home modifications are physical changes that make a house safer to live in. Common categories include grab bars and other bathroom safety features, ramps at entrances, wider doorways for a walker or wheelchair, and stair lifts. Some changes are small. Others involve a contractor and permits.

Some federal and state programs offer grants or low-cost loans for home modifications to lower-income older homeowners. HUD and the Administration for Community Living are federal sources of information on these programs. A local Area Agency on Aging can help identify what is offered in a specific community. None of these changes requires a reverse mortgage or any particular loan.

Your Home Equity: The Range of Options

Sometimes the budget gap remains even after benefits and tax relief are counted. Then the value inside the house itself comes into view. Home equity is the difference between what the home is worth and what is still owed on it. There are several ways to turn it into cash, and each trades something different. A plain overview of getting cash without selling sits alongside the summary here.

1. Selling or downsizing. This frees up all the equity, which can be used to move somewhere less costly. The trade is leaving the home.
2. A home equity loan. This is a lump-sum second mortgage. It is repaid in monthly payments, and it depends on income and credit.
3. A home equity line of credit (HELOC). This is a revolving credit line secured by the home. It works like a credit card with the house as security. It usually requires monthly payments.
4. A cash-out refinance. This replaces the existing mortgage with a larger one, and the homeowner takes the difference in cash. The new loan has its own monthly payment.
5. A reverse mortgage. It does not require monthly mortgage payments. But interest and charges are added to the balance, so the amount owed grows over time. The borrower must keep living in the home as a principal residence, pay property taxes and homeowners insurance, and keep up the home. The loan comes due when the last borrower dies, sells or moves out.

The CFPB notes that a home equity loan or line of credit "might be a cheaper way to borrow cash against your equity," though these carry their own risks and usually have monthly payments. The tradeoffs of a reverse mortgage versus a HELOC come down largely to that payment and that growing balance.

What a Reverse Mortgage Actually Is

Advertising can make a reverse mortgage sound simpler than it is, or more frightening. Here is how it works, in plain terms.

A reverse mortgage is a loan for homeowners 62 and older. It lets them borrow against their home equity without making monthly mortgage payments. The CFPB explains that a Home Equity Conversion Mortgage, or HECM, is "the most common type of reverse mortgage" and is only for homeowners who are 62 and older. The title stays in the homeowner's name. HUD describes the HECM as the only reverse mortgage insured by the federal government, available only through an FHA-approved lender. Lenders and HUD set the eligibility conditions, and HUD publishes the current requirements.

What the reverse mortgage costs over time matters most. The CFPB says plainly that it "is not free money." Interest and fees are added to the balance each month, so the amount owed grows and the equity shrinks.

The borrower has duties. They must use the home as a principal residence, pay the property taxes and homeowners insurance, and keep the house in good condition. The CFPB warns that a homeowner who runs out of money for taxes, insurance or other housing costs "could face foreclosure." The loan must be repaid when the last borrower, co-borrower or eligible spouse sells the home, moves out or dies.

Several other features shape the loan:

• How much may be available. HUD says the amount depends on the age of the youngest borrower or eligible non-borrowing spouse, the current interest rate, and the lesser of the appraised value, the HECM FHA mortgage limit or the sales price.
• How funds may be paid. The CFPB lists three main payment options: a line of credit, a monthly payout, or a lump sum. A lender pays under the loan's terms.
• Fees. Federal rules limit the origination fee, and the lender discloses the actual fee.
• Counseling. A HECM applicant must first meet with a counselor from an independent government-approved housing counseling agency. HUD's HECM Counselor Roster lists counselors, or a person can call (800) 569-4287.
• Canceling. The FTC says that with most reverse mortgages, a borrower has at least three business days after closing to cancel for any reason, without penalty.

A fuller walk-through of what a reverse mortgage is covers each of these steps.

Knowing exactly how a reverse mortgage works, including what it costs and what it requires of you, is the foundation for any decision about it.

When a Reverse Mortgage May Not Fit Your Situation

A reverse mortgage fits some situations and strains others. Seeing where it strains is part of judging it fairly.

A move within a few years. The CFPB calls a reverse mortgage "an expensive way to cover short term cash needs" if a health issue or other event may soon lead to a move.

Leaving the house to heirs free of debt. Interest and charges are added to the balance, so the amount owed grows and the equity left in the home decreases. Heirs who want to keep the house would need to repay the loan. Under the non-recourse protection the CFPB describes, neither the borrower nor the heirs will have to pay back more than the home is worth.

Trouble with taxes or insurance. The borrower must keep living in the home as a principal residence, pay property taxes and homeowners insurance, and keep up the house. Falling behind can lead to foreclosure. The loan comes due when the last borrower dies, sells or moves out.

A spouse or relative who is not on the loan. The CFPB says a person living in the home may stay if they are a co-borrower or eligible spouse. Anyone else's situation needs careful review.

Pressure to buy other products. The FTC warns that some salespeople push annuities or insurance, and that no such purchase is required to get a reverse mortgage.

These stakes are the reason a HECM requires independent counseling. The FTC says the counselor must explain the costs, the financial implications and the alternatives.

Support at Home: Care, Community, and Family Conversations

Money keeps the house. People keep the household running. For a parent who wants to stay put, daily help can matter as much as any budget.

In-home support falls into a few categories:

• Personal care aides, who help with bathing, dressing and other daily tasks.
• Meal delivery programs, which bring prepared food to the door.
• Transportation assistance, for errands and medical appointments.
• Adult day programs, which the National Institute on Aging says can offer social activities, exercise, meals and personal care during the day.

The NIA also points to respite services, which give short-term care at home when the regular caregiver is away. It names the local Area Agency on Aging as a place that may keep lists of services. The Eldercare Locator, a federal service of the U.S. Administration on Aging, is one way to find these local offices.

Family conversations help too. A clear plan sets out who helps with what, how care will be paid for, and what happens if health needs grow. With that plan in place, it is easier for relatives to support the decision to stay home rather than worry about it.

A clear plan for daily support can make staying home feel less uncertain for everyone in the family.