Let's follow the case of a couple who have lived in the same house in Springfield for over 30 years. They had set aside some funds for living expenses after retirement, but they were worried about unexpected medical bills or home maintenance costs. While considering a reverse mortgage, they were still concerned about one thing: whether their assets would decrease for their children.

First, looking at the value of their home, the typical home value in Springfield is $224,619 according to Zillow, and it has increased by 3.2 percent over the past year. Since they had lived there for a long time, their mortgage balance was nearly paid off, giving them a substantial amount of equity to work with. A reverse mortgage allows them to receive funds from a lender based on this equity in the form of a lump sum, monthly payments, or a line of credit. Unlike a traditional mortgage, there is no monthly repayment structure; the loan is repaid when the home is sold, the owner passes away, or the home is no longer used as the primary residence.

This aspect is advantageous, but the concern is that as the monthly funds increase, the equity left in the home decreases over time. This was the point of worry for the couple. In fact, the longer a reverse mortgage is maintained, the less asset there is to leave to heirs, and this fact must be clearly understood alongside its benefits.

Property taxes are another aspect that needs to be continuously monitored. According to Ownwell data, the median effective property tax rate in Springfield is 1.02 percent, which is lower than Missouri's median of 1.25 percent and similar to the national median. However, within the same city, such as in the 65806 and 65809 areas, annual tax amounts can vary from $531 to $3,009 depending on the school district. Even with a reverse mortgage, property taxes and homeowners insurance must still be paid, and a financial capability assessment must be passed to approve the loan.

In terms of costs, the origination fee and mortgage insurance premium for the HECM insured by the Federal Housing Administration, along with closing costs, are factors that increase initial costs compared to traditional mortgages. Conversely, due to the non-recourse loan structure, the couple found comfort in knowing that if the home value falls below the loan balance later, their heirs would not need to pay the excess amount.

When calculating how much they could actually borrow, three factors came into play: age, current interest rates, and home value. The older they are and the lower the interest rates, the higher the borrowing limit. The HECM is only available up to a limit set by HUD. If there had been an existing mortgage, they would have had to pay that off first, but since this couple had very little left on their loan, they had more equity available to utilize.

The couple also considered a home equity line of credit and downsizing in addition to the reverse mortgage. A home equity line of credit has lower initial costs but requires monthly payments, which could be burdensome on a fixed income, while downsizing would provide a lump sum but would require leaving their long-time neighborhood. Ultimately, they leaned towards the reverse mortgage, which would allow them to stay in their current home while generating cash flow, but the concern about decreasing equity still lingered.

They also discussed ways to reduce the burden of property taxes. Missouri has a circuit breaker property tax credit program that refunds part of the property tax for homeowners aged 65 and older with income below a certain level. However, the income criteria and refund limits can be adjusted annually, so they were advised to check directly with the Greene County Treasurer's Office or a tax professional.

In the end, the couple decided to consult with their children first and then seek advice from a HUD-approved counseling agency. As of 2024, Missouri has a population percentage of 65 and older at 18.8 percent, which is similar to the national average, suggesting that there are likely many households in Springfield facing similar concerns. A reverse mortgage is a product that requires careful consideration of both its advantages and disadvantages. This article does not constitute investment or legal advice, and it is recommended to consult with a professional before entering into any contracts.