50+ Lifestyles

What a home buyer taught me about the Home Equity Conversion Mortgage (how to save thousands in retirement)

By Dan Dolan
Dolan Homes

Over the years I’ve learned a lot from our customers. Those of you who read my column in this publication may recall that my weekend open houses are a constant source of information for me.  Dolan Homes has specialized in senior-oriented housing solutions for the past 25 years, and in that time many of our best design and development innovations have come directly from customer feedback. It’s my best source of consumer research and has led to some wonderful ideas.  For example, about a year ago one of our customers commented on the importance of connecting the laundry room to the master suite’s walk-in closet, considering nearly all of the laundry in an empty-nester household comes from that side of the house.  It was a great idea, and redesigned our floor plan to make that our standard.

Along the same lines, many of you know we are big supporters of the Home Equity Conversion Mortgage (HECM). It allows seniors age 62 and over to purchase a home with a moderate one-time down payment with no further mortgage payments ever–for as long as the buyers remain in the home.  Using a HECM, a home buyer aged 62 and older can“convert” the equity in their current home equity in the new home and avoid a monthly mortgage payment.

We see the HECM as a tool for allowing seniors to “preserve their capital.” And we think that it’s effective in doing that. More specifically, by taking a portion of the proceeds from the sale of the existing home, using it for the minimum down payment on  the new home—and investing any excess proceeds—the home buyers are getting a return on the surplus funds. For many buyers we know, that extra investment can add up to well over a thousand dollars per month. Equally important, by not having to make a monthly mortgage payment, the buyer preserves cash flow and that often eliminates the need to dip into the 401K to make those monthly payments. Again, that’s a preservation of capital. And we see all of that as very desirable.

But here’s the “new” idea one buyer told me. She indicated that unless she moved to a home with all-on-one-floor living, she would soon need to move to an independent living facility at a cost of over $80,000 a year for her and her husband.  Her current home is a split-level with the laundry in the basement. And she must climb eight stairs to the kitchen whenever she drives into the garage, and down eight stairs to change a load of laundry. That has become difficult and she sees it becoming impossible soon. Her current home should sell for about $350,000 and the couple has no mortgage.

As she described it to me, by selling her current home and buying a new Dolan Homes’ villa, their HECM down payment will be less than $240,000 (both buyers aged 74), they will have no monthly mortgage payment, and have secured their own low-cost retirement housing solution for life.  Their new home is energy efficient, fully accessible, beautifully finished, add lawn and snow care is provided for just $100 per month.  And they will be living in a highly desirable part of town that’s close to all the amenities. Or as she asked her husband, “what’s not to like”?

For this couple, a possible $80,000 annual outlay for an independent living facility would have depleted their resources in just a few years. Instead, by using a Home Equity Conversion Mortgage, the couple can live in their new home, and they can hold on to their resources without a need to make major monthly payments. Once again, what’s not to like?

For a full explanation of how a Home Equity Conversion Mortgage might be of help to you or to learn more about Dolan Homes, give us a call at (563) 506-4265, send us an email at kevin@dolancorp.com, or visit our model homes at Mill Creek Crossing in Clinton or Quail Hollow in Bettendorf.  We have an inventory of newly finished homes in Bettendorf, Davenport, Clinton, Muscatine, and Blue Grass as well as great lots at each location to build your dream home.

You can also check out these current listings:

4424 Chestnut Drive, Bettendorf Iowa, open daily 2-3 pm Sunday-Friday

1630 Garrett Avenue, Clinton Iowa, open daily 11:00 am-1:00 pm Tuesday-Saturday