What are the alternatives to a reverse mortgage to gain cash in your retirement?

Are you or a family member entering or already in retirement and have not adequately saved or planned financially for your retirement years, and thus are considering a reverse mortgage?  Well, you are not alone.  Many individuals and families face this issue and consider obtaining a reverse mortgage to solve their cash flows problems in retirement.  However, before you obtain a reverse mortgage, consider the below possibilities and obtain professional advice from a CPA, financial planner, or attorney.

A reverse mortgage is loosely described as a type of home loan for retired or elderly individuals which allows them to access the equity in their home to supplement retirement income by converting that equity to cash payments. The most common type of reverse mortgage is a Home Equity Conversion Mortgage, typically called an HECM, which is the only reverse mortgage insured by the Federal Government and is available only through a Federal Housing Administration (FHA) approved lender or bank.

A reverse mortgage can be a good device to use in specific situations, but are there alternatives to a reverse mortgage?  Well, the answer is yes; however, the alternatives may not be right for you or your family member.

By example, one alternative would be an outright sale of the home to a third party.  Many retirees have had children who have grown and left the home.  Selling the home and purchasing a smaller sized and lower cost home may be a way to still own a home during your retirement years but also access cash. The cash is realized by the difference between the value of the home versus the lower cost down-sized home.  The cash gained from downsizing can be wisely invested to provide for your retirement plans.  There are downsides to this, such as regret regarding the sale and having to relocate to a new community, tax issues, etc.  A decision in favor of this alternative to a reverse mortgage should not be taken lightly.

Another alternative to consider would be an intra-family sale of the home.  If a family member has the financial wherewithal to purchase the home from the parent or grandparent, this will convert the home to cash for the retiree while keeping the home in the family and possibly allowing the retiree to stay in the home during their retirement years.  In California, and thanks to Proposition 13, this type of intra-family transaction may even preserve the assessed value of the real property because this type of transfer may be excluded from real property tax reassessment.  On the downside, family relationships can be complicated and such an intra-family transaction could lead to serious emotional and legal complications.  A decision in favor of this alternative to a reverse mortgage should not be taken lightly.

Another alternative to consider would be the rental of the home or a second unit, if there is one, located on the same property.  This can be a possibility in certain and probably limited circumstances. However, the obvious downside of this is that it may require the retiree to relocate because the rental income may not be enough to supplement the amount needed in retirement in addition to the ongoing upkeep and maintenance of the home, and the retiree may not be in a position or desire to take on the management aspects of being a landlord.

Regardless to the above alternatives, retirement these days is more complicated than it used to be and taking a reverse mortgage to solve the inability to save for retirement or lack of financial planning for retirement may not be the best solution.  As such, it is highly recommended that anyone or any family member facing the above circumstances should contact the Chilina Law Firm, or another California attorney practicing in the area of Estate Planning or a CPA or financial planner to obtain further information.

Chilina Law Firm, a Professional Corporation, is a full-service estate planning, probate, trust administration, business law, and real property law firm that provides a wide-range of advising, transactional, and litigation services to its clients from its office located in Atascadero, California. The firm’s attorneys represent individuals and business entities in an assortment of transactional and litigation matters involving estate planning (including trusts, wills, powers of attorney, and medical directives), probate, trust administration, as well as general business law, contracts, corporate governance, land use, and real property. Chilina Law can be contacted by telephone at (805) 538-5038 or by email at info@chilinalaw.com or visit the Chilina Law Firm at www.chilinalaw.com. Chilina Law Firm is based in Atascadero, California and serves North San Luis Obispo County communities, including Santa Margarita, Atascadero, Templeton, Paso Robles, and San Miguel.

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