Recently, there has been a noticeable increase in inquiries about living expenses after retirement in Honolulu. Many people have expressed that relying solely on Social Security is insufficient to cover the high cost of living in Oahu. Among the cases I reviewed, there were many instances where home values had significantly increased, but the cash available for monthly expenses was lacking.

Let's start with the housing market in Honolulu. According to Zillow, the average home value is $767,860, which is a 0.9 percent increase from a year ago. However, according to Houzz, the median price is reported to be lower at $605,000, due to differences in the scope and methodology of the surveys. Regardless of the source, Honolulu is one of the most expensive areas in the U.S., indicating that long-term homeowners have substantial equity built up.

One way to access this equity for living expenses is through a reverse mortgage. This structure allows homeowners aged 62 and older to borrow against their home equity, with the most common product, HECM, being insured by the Federal Housing Administration. Borrowers can choose from a lump sum, monthly payments, or a line of credit, and the principal and interest are settled 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 it's also important to note that the property tax structure in Honolulu differs slightly from other areas. The tax rate for primary residences that qualify for homeowner exemptions is set at a low 0.35 percent, applicable for the fiscal year from July 2025 to June 2026. While this is one of the lowest rates in the nation, the actual amount paid can still be significant due to the high home values. Even after obtaining a reverse mortgage, homeowners must continue to pay property taxes and insurance, and they must pass a financial assessment to ensure they can afford these costs.

The ability to create cash flow without monthly repayment obligations is a clear advantage, and even if home values drop below the loan balance later on, HECM is a non-recourse loan, meaning heirs are not responsible for the difference. However, the initial costs, including origination fees and upfront mortgage insurance premiums, are generally higher than traditional mortgages, and over time, the equity left in the home may decrease, reducing the assets passed on to children. There is also the risk of default if property taxes and insurance cannot continue to be paid.

Among the cases I reviewed, there were several instances where children had already moved to the mainland, leaving their parents in Hawaii to maintain a large home. In such families, there was a clear tendency to prefer staying in their familiar neighborhood by using a reverse mortgage for living expenses rather than selling the home. However, it is advisable to make this decision only after going through the mandatory counseling with a HUD-approved counseling agency and discussing it with children on the mainland, even if just over the phone.

Oahu often falls within the federal limits for loan amounts, but due to high home prices, the actual amounts available can be larger than in other states. However, it is important to note that as the amount borrowed against the home increases, the rate at which equity decreases may also accelerate. For condominiums, it is wise to prepare for financial assessments considering additional special assessments charged separately from maintenance fees, and for single-family homes, it is prudent to account for potential fluctuations in insurance premiums due to natural disasters like hurricanes.

As of 2024, the population aged 65 and older in Hawaii is projected to be 21.5 percent of the total, significantly higher than the national average of 18 percent. Given the high proportion of retirees, it is likely that more cases of reverse mortgage consideration will arise in Honolulu. However, since the specific conditions for this product can vary by state and county, it is advisable to verify the conditions applicable to Oahu during the counseling process. It is essential to undergo mandatory counseling with a HUD-approved agency before applying, and since there are actual cases of fraud targeting the elderly, it is important not to rush the decision and to discuss it thoroughly with family members. This article does not constitute investment or legal advice, and consulting with a professional before making any contracts is recommended.