After retirement, relying solely on Social Security and a bit of savings can lead to anxiety when unexpected medical bills or repair costs arise each month. Let's follow the situation of a family that has lived in Columbus for a long time and has paid off their home loan. They own a home but face a common scenario of having insufficient cash available each month.

First, let's look at the market value in the area where this family lives. According to Zillow, the average home value in Columbus is $152,411, which is a 4.0 percent increase from a year ago. According to Redfin, last month's median sale price was $222,000, and according to Zillow, the median sale price in June was $239,000, which is even higher. This discrepancy arises because Zillow uses the estimated total value of inventory, while the other two sources reflect only actual completed transactions. Regardless of which source you consider, it remains true that this family has built up significant equity in the home they have been paying off for years.

One option this family can consider is a reverse mortgage. If they are over 62 years old, use the home as their primary residence, and have an existing loan balance that can be paid off with the reverse mortgage loan amount, they qualify to apply. The flagship product, HECM, is backed by the Federal Housing Administration and can provide funds in a lump sum, monthly payments, or a line of credit, with the principal and interest being settled when the home is sold, the owner passes away, or they no longer live in the home. Unlike traditional loans that require monthly payments, this structure is advantageous for families like this one that are short on cash, as it provides immediate funds for living or medical expenses.

While this aspect is beneficial, it is also important to note that tax burdens do not disappear. According to Muscogee County, the median effective property tax rate in Columbus is 1.25 percent, while the county overall is 1.39 percent. The millage rate is 23.321 mills, and the assessed value is based on 40 percent of the fair market value. Even if this family secures monthly cash flow through a reverse mortgage, they will still need to pay property taxes and insurance out of pocket, and they must pass a financial assessment to ensure they can handle these costs before the loan can proceed.

The initial costs are also a factor this family needs to consider. An origination fee and initial mortgage insurance premium are added, along with an annual insurance premium of around 0.5 percent, and when closing costs are factored in, the initial burden is greater than that of a traditional mortgage. Additionally, as time goes on, the equity left in the home decreases, which means the asset passed down to children will be smaller. However, since HECM is a non-recourse loan, if the home value falls below the loan balance, heirs are not required to pay the difference, which can serve as a safety net for this family.

Looking a bit deeper into the neighborhood where this family lives, there are areas in Columbus that are preferred by Korean families due to the school districts, and many check school ratings through indicators like GreatSchools. However, school district boundaries can change over time, so it is safer to verify the assigned school for the address before applying for a reverse mortgage. Even if this family has raised their children and is now retiring, knowing whether they are in a neighborhood with a school district premium can help with asset planning when it comes time to sell the home.

If this family has reached this stage, the next step is to confirm the mandatory counseling with a HUD-approved counseling agency. Without this counseling, the application for HECM cannot proceed. During the counseling, the family's financial situation will be reviewed to determine if a reverse mortgage is truly the right choice, and how it compares to downsizing or other loan options. It is advisable to carefully weigh the pros and cons, and after discussing with their spouse and children, make a final decision.

As of 2024, the population over 65 in Georgia is projected to be 15.8 percent of the total, and there is a growing trend of retirement families relying on fixed income in small cities like Columbus. If this family decides to proceed with a reverse mortgage, they must undergo mandatory counseling with a HUD-approved agency before applying, and given that there are actual scams targeting the elderly, it is safer to discuss thoroughly with their spouse or children before making a decision. This article does not constitute investment or legal advice, and it is recommended to consult with professionals before entering into any contracts.