A Los Angeles Times article suggested that there are several other alternatives that a older homeowner should consider before turning to a reverse mortgage. Although it is true that a prudent consumer should evaluate all available options prior to making a decision to proceed with a reverse mortgage, the options presented are limited in scope, not widely available and are usually in small amounts designed for very specific uses.
The article portrays local or regional government assistance programs that may offer deferred payments loans (DPL) or property tax deferral programs (PTD) as the public sector's version of reverse mortgages. However, the similarities end at deferred payments.
DPL's are typically loans offered to homeowners in smaller amounts to cover the costs of home improvement under specific guidelines, such as health and safety issues or adding accessibility elements.
PTD's simply provide the homeowner with the ability to defer a portion of or all of their property tax payments for as long as they remain in the home.
These types are generally available to homeowners who have low or moderate income and some include minimum age or disability requirements.
Due to their limited availability, qualifying requirements and limited resources available to fund them, these programs cannot offer the options and flexibility of a reverse mortgage.
The article also suggests that Supplemental Security Income (SSI) benefits are available to people whose liquid resources are less than $3,000 for a couple, $2,000 for an individual. Monthly unearned income also cannot exceed $924 or $632 respectively.
None of these types of programs can be used to pay off an existing mortgage and use of the proceeds may be limited. Additionally, the article fails to acknowledge that having a reverse mortgage doesn't necessarily preclude a homeowner from also taking advantage of other available programs. For example, homeowners who qualify for SSI, can utilize a reverse mortgage with a line-of-credit that they access only when needed. As long as their liquid resources remain in line with the requirements, the amount available to them via the line-of-credit does not impact those benefits.
Should the available assistance programs not fit the bill, the article suggests that a homeowner consider other living arrangements, such as creating an accessory unit on the property and renting out the larger house, moving into a "ECHO" cottage built on the property of a family member, or sharing their dwelling with another person. These options can offer certain benefits to seniors who prefer the new arrangement, possibly being closer to family or having assistance with basic needs and home upkeep. However, seniors who desire to remain in their home and independent, such arrangements can be confining and have an adverse impact on quality-of-life.
For a older homeowner, analyzing the options requires an understanding of their specific need. Local programs, where available, can resolve specific issues, or one-time needs. A change in housing arrangement can certainly resolve financial concerns for those who do not desire to remain in their own home. However, when a homeowner's needs vary, or they need more flexibility in how they utilize available funds, there is certainly value in taking a close look at a reverse mortgage.
Ultimately, the error that is made in these types of recommendations is that they suggest an older homeowner should consider other alternatives before considering a reverse mortgage. However, the most intelligent way to approach these types of major financial decisions is to compare and contrast all alternatives at the same time and strive to fully understand the options in order to determine which option best suits the specific needs. By leaving one alternative out of the initial evaluation, a person may not be fully aware of the choices they have and may make a decision based upon incomplete information.
