A client nearing retirement once visited for advice on how to manage monthly living expenses. So, is there a way to convert the assets accumulated in the home into cash flow? This is often the most common question. If retirement income relies solely on Social Security and personal savings, it is even more beneficial to explore alternatives in advance.

A reverse mortgage is a product that allows homeowners aged 62 and older to borrow against the equity of their home. Unlike a traditional mortgage, where payments are made monthly, funds are received from the lender in a lump sum, monthly payments, or a line of credit. The principal and interest are repaid when the home is sold, the owner passes away, or the home is no longer used as the primary residence. The most common product, HECM, or Home Equity Conversion Mortgage, is insured by the Federal Housing Administration (FHA) and is the only type of reverse mortgage backed by the federal government.

So, what are the home prices like in the Allston area? According to Zillow, the average home value in Allston is $605,894, which is a 3.0 percent increase from a year ago. Being close to downtown Boston, the equity is generally larger than in other areas, indicating more potential for utilization. What about property taxes? The average effective property tax rate in Boston is about 1.06 percent, while the overall average in Massachusetts is around 1.12 percent, which is slightly higher than the national average. This is advantageous, but it is important to note that even after obtaining a reverse mortgage, these taxes and insurance premiums must still be paid, which can be a burden. It is also good to remember that tax rates can be adjusted slightly each year.

Let's look at the pros and cons. The biggest advantage is securing cash flow for living expenses or medical costs without the burden of monthly repayments. Additionally, HECM has a non-recourse structure, meaning that if the home value falls below the loan balance, heirs are not required to pay the difference thanks to FHA insurance. On the downside, over time, the equity in the home decreases, which may reduce the assets passed on to children, and initial costs such as origination fees, mortgage insurance premiums, and MIP are generally higher than traditional mortgages. MIP starts at about 2 percent initially and is around 0.5 percent annually.

What are the conditions to qualify for this product? You must be at least 62 years old, the home must be your primary residence, and if there is an existing mortgage balance, it must be at a level that can be paid off with the reverse mortgage loan. You must also pass a financial assessment to determine if you can continue to pay property taxes and insurance premiums. It is crucial to understand that failing to pass this assessment or not being able to continue payments can lead to a risk of default.

By 2025, Massachusetts is projected to have 17.1 percent of its population aged 65 and older, indicating a steadily aging demographic.

Conversely, there are situations where this product may not be suitable. If you plan to move in the near future or if passing the home fully to your children is your top priority, it may be better to consider other options before a reverse mortgage. Ultimately, the answer depends on your living plans and priorities.

The method of receiving funds is also a consideration. The monthly payment option is suitable for supplementing living expenses, while the line of credit option allows unused credit to grow over time, making it suitable as a reserve fund. Regardless of the method chosen, it is important to consider how long you plan to stay in the home, as the structure involves drawing down equity in advance.

Before applying for HECM, you must undergo mandatory counseling from a HUD-approved counseling agency. Since scams targeting seniors involving reverse mortgages do exist, it is advised to make decisions carefully and not rush without sufficient counseling and discussions with family. This is not investment or legal advice, and it is recommended to consult with professionals before entering into any contracts.