For most of us, the bulk of our housing costs are relatively constant. Monthly mortgage payments may vary slightly as property taxes and insurance rate are updated annually. But one housing cost is often seasonal – Heating Ventilation and Air Conditioning (HVAC). It can make, or break, a budget.
One advantage of living in the south is the reduced cost of heating a home during the winter. The trade-off is the high cost of energy to cool the home in the summer. But this year, the U.S. Energy Department has forecast a significant increase in heating costs for the four primary fuels that heat America’s homes – natural gas, heating oil, electricity, and propane.
Some of these increases are due to price increases. However, according to the U.S. Energy Information Administration (EIA), weather plays a role as well.
“The latest outlook from NOAA expects winter temperatures east of the Rocky Mountains to be colder than last winter, with projected heating degree days in the Northeast, Midwest, and South about 16-18% higher.” www.EIA.gov
Colder Weather May Fuel Reverse Mortgage Demand
Here are the EIA’s projected cost increases per household this winter by fuel type:
- Natural gas + $116 (+ 22.4%) representing nearly 1/2 of U.S. households
- Heating oil + $378 (+ 38.1%)
- Electricity + $49 (+ 5.4%)
- Propane (NE) + $345 (+ 21.0%) in the Northeast
- Propane (MW) + $290 (+ 29.6%) in the Midwest
We never know what contingencies may arise that will disrupt the monthly budget. Things like inflation, low interest rates, a poor sequence of market returns, family emergencies, and health concerns can all impact a homeowner’s bottom line. For those on a fixed income, these increases in winter heating costs are significant.
Fortunately, most older homeowners have a home equity nest egg that can improve their retirement cash flow. The reverse mortgage line-of-credit (LOC) may be established early in retirement and used for unexpected expenses or emergencies. If monthly cash flow is needed, a reverse mortgage tenure or term payment may do the trick.
If you have read my previous blogs and/or my book, Understanding Reverse, you might remember that I discussed three primary uses for reverse mortgages – Need, Lifestyle, and Planning.
Using a reverse mortgage to supplement retirement cash flow may allow the home itself to pay for increased heating costs. This can be done without disrupting traditional retirement planning. For this reason, a reverse mortgage may be used for all three of the primary uses mentioned above. Keeping the home at a comfortable temperature satisfies a need, improves lifestyle, and protects traditional retirement planning.
While the overwhelming majority of baby boomers wish to remain in their existing homes during retirement, homeownership can be expensive. I should know. I’m scheduled to replace two air conditioning units in the spring. But it may be wise for those who are at least age 62, and wish to age in place, to consider establishing a reverse mortgage line-of-credit today, and know that they can weather the winter storms as they come.
Others are warming up to the idea of using a reverse mortgage to enhance retirement. To learn more this financial tool, buy the book, Understanding Reverse, and subscribe to this blog.
As this is the last blog post of 2016, I want to thank those of you that have made Understanding Reverse the top-selling book on Home Equity Conversion over the last two years. Stay tuned for the release of the 2017 edition, and have a Merry Christmas and a Happy New Year.
Dan Hultquist