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Retirement Lifestyles
Modern-day downsizing with no mortgage payments and more cash reserves

Double Your Retirement DollarsDownsizing has become the desire of many Baby Boomers and mature Americans. They have raised their children in the family home, worked hard to pay off or pay down their mortgage and are ready to sell and move to their retirement dream home. Unfortunately for many, it can be difficult to make the finances work. Do they sell the home and pay cash for the new one, get a small mortgage, or just stay? According to the Demand Institute and American Housing Survey, 64.5 percent of homeowners age 62 and older own their homes free and clear and over 40 percent of them have a desire to move and purchase another home. The truth is it’s much easier than ever to make the move.

What many retirees don’t realize is they can purchase a new home and have no mortgage payment without paying all cash for the next house.

Rick’s modern day ‘downsize’ story

Rick is a 73-year-old who recently sold his waterfront home on Mason Lake for $600,000. Before he sold his home, he was torn about how to downsize. The math just didn’t seem to work. Since he had a mortgage on his home, he needed to sell it for a high enough price so he could purchase a new home for cash. Rick’s payment of $937 on the Mason Lake house was two thirds of his monthly retirement income. He was determined to not have a mortgage payment on the new home, but he thought paying cash was the only way. He had about $380,000 in equity, but the dream retirement home he wanted to purchase was $418,000. How was he going to make this work?

Fortunately Rick learned about a program at a workshop he attended. He learned about an FHA government-insured program, called a Home Equity Conversion Mortgage, which allows retirees or almost retirees to purchase a home with no mortgage payment, and not pay all cash. This program is designed to help Baby Boomers and mature Americans purchase a home while preserving cash and reducing monthly obligations.

Here’s how it worked for Rick: He made an offer on a new home in University Place. The home was a 1,400 square-foot, 3-bedroom, 2-bath home in a gated community. Simultaneously, he listed his home for sale on Mason Lake and soon sold it, netting $380,000. Rick put $181,000 down on the new home, with the remaining purchase price being covered by a Home Equity Conversion Mortgage. This loan does not require Rick to make any payments for life as long as he lives in the home, though he is still responsible for paying the homeowners association dues, property taxes and insurance.

The end result is Rick now lives in a brand new single-level home with no mortgage payment and $199,000 in extra cash he can use for living. Rick only needed to prove he was at least 62 and had the cash available, which he used from his Mason Lake home to qualify for the loan.

With the housing market decline, equity over the last several years has fallen significantly, and is just now starting to make a comeback. As a result, many people have simply decided to stay in their homes and not sell, since most retirees don’t want a mortgage payment. Most believe they have two options when purchasing a home for retirement. The obvious option is paying all cash so they don’t have a mortgage payment. The second option is paying a large amount down and carrying a small mortgage with a low monthly payment. The problem with these options is one exhausts valuable cash resources, while the other requires qualifying for a mortgage and servicing a monthly payment. Both options are not desirable for most retirees.

How it’s a loan but requires no payments

Rick doesn’t ever have to make a payment while he lives in the house; the interest is simply added onto the loan with no obligation to pay it back until he permanently moves out. As the loan increases, the value of the home may also increase or decrease. The equity position does not matter. If the market value of the home decreases, Rick or his heirs will never have to pay the excess loan balance above the sales price. It is a non-recourse loan, meaning Rick or his heirs are not responsible for the balance. If there is equity left when the home is sold, Rick or his heirs are able to keep it with no penalty.

For those seeking to downsize to a new home and have no monthly payment, there is now a new option. No longer do Baby Boomers and mature Americans need to pay cash to achieve no mortgage payment. The Home Equity Conversion Mortgage allows a person to purchase a home with no payments for life.

Retirement planning workshops

Upcoming free informational workshops will be hosted by Tane Cabe, author of Double Your Retirement Dollars — Little Known Secrets to Increase Income, Assets and Cash for Today’s Retiree, at the following Kitsap Bank branch locations:

  • March 13 in Sequim at 10:45 a.m.
  • March 13 in Port Angeles at 2 p.m.
  • March 18 in Port Ludlow at 10:45 a.m.
  • April 8 in Kingston at 10:45 a.m.
  • April 10 in Silverdale at 10:45 a.m.
  • April 17 in Port Orchard at 10:45 a.m.

Call (800) 490-4287 for more details. Workshops are free to the public, and there is no obligation.


Tane Cabe is the manager at Churchill Mortgage in Gig Harbor, the only mortgage company exclusively endorsed by Dave Ramsey.

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