Home Maintenance with a Reverse Mortgage

You may want to remodel your home so that it is more enjoyable during retirement. You may have to remodel to make it more disability friendly. You might just need to take care of some deferred maintenance. Or you may want to add an addition, or build an ADU to house a caregiver or an ailing parent.

Home Maintenance and Remodeling Costs That Could Be Paid for by a Reverse Mortgage

Average cost nationally for a bathroom remodel is $9,348.[1]

Average cost nationally for a new roof is $6854.[2]

Average life for asphalt, 3-tab shingles is 15 to 18 years.[2]

Average cost nationally for a kitchen remodel is $20,556.[2]

Average cost nationally for a new fence is $2,620.[2]

Average cost nationally to make a home disability friendly is $5,585.[2]

Average cost nationally to paint a home is $2624.[2]

The average home needs to be repainted every 7 to 10 years.[2]

Replacement of an HVAC unit ranges from $1900 to $4500 depending on the brand.[2]

The average life expectancy for an HVAC unit is 15 to 20 years.[3]

Average cost nationally to build an addition to your home is $40,942.[4]

Median cost to build a detached ADU, accessory dwelling unit, AKA mother in law unit is $90,000.[4]

Be Prepared for Repairs and Maintenance

Given just the list above, the likelihood of needing to replace a roof, paint your home or replace an HVAC unit during your retirement is very high. In fact, some of those things may need to be done two or more times during your retirement. None of those items are inexpensive. There is general maintenance of your home as well, which can include yard care, roof care, tree maintenance, gutter cleanings and more. In other words, the costs of owning a home go far beyond taxes and insurance.

When repairs or replacements come up for your home, you may have several different options to pay for them, which could include, savings, retirement accounts, credit cards or reverse mortgage proceeds.  Using funds from savings or retirement reduces what you will have available in the future, however using them may be the right choice. Credit cards are a poor choice as they can have a major impact on your budget and reduce your monthly cash flow as well as put you at risk for financial harm. The reverse mortgage can help retain savings and retirement accounts without reducing your monthly cash flow.

I’ve talked about the various options you have in regards to structuring your loan. I suggested that whenever you can, it almost always makes more sense to set aside some of your equity in a line of credit. Home repairs and maintenance are one of the big reasons for this.

Remodeling Your Home

Remodeling could be because you want to update the look and feel of your home so that it is more enjoyable during retirement. It could be that you want to make your home more energy efficient and comfortable, or it could be due to needing to make it more functional because of disabilities.

The question once again is where the funds to remodel the home will come from. I highly recommend working with your financial planner, CPA and a reverse mortgage professional to come up with the best solution.

A remodel that is just a few thousand dollars may not be that big of a deal. But a remodel that is going to cost tens of thousands of dollars could have significant financial implications. There are several issues that you could face. The first thing is a reduction of monthly income to sustain a constant draw from retirement, should you use retirement accounts. The second is tax ramifications from withdrawing funds from retirement accounts.  Using cash from savings could reduce funds available for emergencies. It is critical to plan with your advisors should you need, or want to remodel your home.

Additions or Additional Dwelling Unit (ADU)

Additions and ADU’s for boomers are becoming more and more common. This is not because they want additional living space or rental income. It is because they have older parents that they want to keep close, or they need to help take care of them

As you saw in the fact box above, an addition, or ADU can run between $40,000 to $90,000. That is a significant amount of money. I would recommend getting your financial advisor and CPA involved. You also may want to consider getting a real estate agent involved so that you can get a better idea as to what each of these options will do to your home value. An addition or ADU could add quite a bit of value to your home and provide a nice return on investment. However, an addition will more than likely increase your property taxes.

Using the Reverse Mortgage

The reverse mortgage could be structured in a variety of ways for you to take care of maintenance and repairs, remodeling or additions and ADU’s. Working with a reverse mortgage specialist can help guide you to the proper structuring of the loan.

Repairs, maintenance, replacement, remodels and additions all come with a hefty price tag. It is critical that you take the time to plan, as well as understand the ramifications of your decisions. You need to understand the tax ramifications as well as loss of future use of funds. Work with your trusted advisors to come up with the best plan of action that makes the most sense financially.

[1] http://www.homeadvisor.com

[2] http://www.bestpickreports.com/blog/post/how-long-does-exterior-paint-last-tips-to-a-long-paint-life

[3] http://energy.gov/energysaver/central-air-conditioning

[4] https://accessorydwellings.org/2014/06/25/how-much-do-adus-cost-to-build/