IF YOU’RE 62+ AND STILL PAYING A MORTGAGE… Here are 7 Reasons You Can End Up in Foreclosure and How to Protect Your Home Now
I want to be very direct about this: Seniors are at a distinct disadvantage and face serious risks when attempting to pay off mortgages during their retirement years.
That’s why by 2011, according to AARP’s study, “Nightmare on Main Street – Older Americans and the Mortgage Market Crisis,” seniors had lost 1.5 million homes to foreclosure, and that same study showed that there were an additional 3.5 million seniors at risk of foreclosure.
Many are facing this risk unnecessarily. There are ways to reduce the risks that come along with attempting to pay off a mortgage after age 62.
It’s really no different than the rule about investing: The older we get, the less risk we can handle. When you’re 35 you can put 90 percent of your portfolio into growth funds if you want to, but at 65 that would be seen as far too much risk.
Well, I’m about to show you how the same sort of thinking can be applied to the type of debt carried after age 62, because as unpleasant to think about as they may be, consider the following facts about the financial insecurity that’s inherent to everyone’s retirement years.
- Whether permanent or merely temporary, more than any other demographic segment of the population, seniors are subject to unexpected drops in income for a whole host of reasons… illness, injury, job loss/reduction in pay, or the early death of a spouse, God forbid, can cause a senior’s income to fall overnight.
- Seniors are also the most likely to find themselves with increased expenses, most notably for unexpected out-of-pocket costs of medical care, which can rise into the six-figures range, or expenses for things like dental care, home maintenance, home care, or because adult children need financial assistance.
- Although Medicare covers a lot for the population age 65 and over, out-of-pocket medical expenses still bankrupt many seniors. Medicare does not cover co-payments, deductibles, home care services, or non-rehabilitative nursing home care, so obviously seniors are expected to use their life savings to pay these types of expenses. In addition, because political pressure on Medicare to curb its growing cost in future years is mounting, seniors are all but certain to see their co-payments, deductibles, and other out-of-pocket costs increase in the years ahead.
- Seniors are also the group least able to recover when something negatively impacts their liquidity/cash reserves and overall financial condition. While someone in his or her 40s or 50s might take on a part-time job… or decide to work more hours… or even to change jobs… the older we get, the harder it becomes to do any of those things.
- Many retirees receive a significant percentage of their income from the interest, dividends and investment gains associated with their retirement portfolios. When we experience market downturns, as many retirees learned the hard way back in 2008, that income can fall precipitously, with little or no recourse available.
- Many seniors have equity in their homes, which is great if you plan on selling your home, but very bad should you endure a financial hardship and need a loan modification to save your home from going into foreclosure. In fact, home equity is the most common reason that seniors fail the NPV test, which is the test used to qualify for any sort of loan modification.
- Many seniors don’t yet realize it, but the days of being able to qualify for a Home Equity Line of Credit (HELOC) or second mortgage based on the amount of equity in a home are long gone. Today, you must meet strict income and credit score requirements to qualify for any such mortgages, so if seniors wait until they need the loan, it’s highly likely they won’t qualify.
Retirement used to be a time for people to enjoy life without a mortgage… a time when heavy debts were supposed to be behind us.
Increasingly, however, that’s not the case. Today, there are more than 10 million Americans over age 62 still making mortgage payments, and I think it’s clear that traditional mortgages simply were not designed for people in their retirement years.
In addition to the risks above, miss one payment on your existing mortgage and your credit score drops. That can trigger higher interest rates on credit cards, which means having to make higher monthly payments. Miss three or four mortgage payments and you can be headed for foreclosure… and with reduced income, and equity in your home, the odds of qualifying for a loan modification are not good.
NOW IMAGINE THIS…
What if there was a credit card specially designed for those over 62 years old… that was exactly like any other credit card… except that it allowed you to skip making payments whenever you wanted or needed to, without any negative repercussions?
Or, what if there was a specially designed car loan that you could get after you turned 62 that allowed you to miss payments without having to worry about your car getting repossessed?
Wouldn’t you want either of those instead of the credit cards or car loans you have now?
Well, that’s what a Home Equity Conversion Mortgage, or HECM for short, represents. It’s a mortgage, so just like any other mortgage you can keep making payments just like you do now… but if you want or need to stop making payments… you can… and for as long as you want to… or need to.
An Idea You Probably Haven’t Heard Before…
Many seniors can greatly reduce or even eliminate the risk of getting into trouble with their existing mortgage simply by refinancing into a reverse mortgage. I’m not suggesting you take cash out unless you need to. You can continue to make monthly mortgage payments just as you are now, in order to pay off your home as you’d always planned.
You see, a reverse mortgage IS JUST A MORTGAGE… it’s very much like any other FHA loan but it happens to come with the most flexible repayment terms imaginable. With a reverse mortgage you still own your home… you still have to pay the property taxes, insurance and maintenance, just like you do now. But, with a reverse mortgage…
- You can create your own interest only loan by deciding to make interest only payments.
- You can decide to make principal and interest payments that are amortized to pay off the loan in whatever number of years you desire… 5 years, 10 years, 15 years, 20 years, 30 years or longer.
- You can create your own balloon payment, choose its due date, and then change it later if you want to.
- Or you can choose to make no payments whenever you want… and for as long as you want, in which case the loan will be repaid after your death or when you move out of the home.
When you have a reverse mortgage, should anything happen that causes your income to drop unexpectedly, you can skip as many payments as you want to, or need to… and no one calls, no once cares. It’s more flexible… so it’s more forgiving… and for older Americans, that can be a very important advantage when things don’t go as planned.
Also, to qualify for a reverse mortgage your FICO score doesn’t matter, and neither does your income, beyond having enough to pay your property taxes, insurance and normal maintenance, of course. To qualify you just need to be 62 or older, and have sufficient equity in your home.
Traditionally, seniors that needed to convert home equity into retirement income were the only people that used reverse mortgages, but that’s not the only reason to switch over to a reverse mortgage. Even if your goal is to pay off your current mortgage, and you’re still comfortably making your mortgage payments, you can still benefit from changing over to a reverse mortgage.
There are reverse mortgages offered in both fixed and variable interest rates, and the rates are comparable to regular mortgages, so if you have sufficient equity and otherwise qualify for the reverse mortgage program, chances are you can make the switch and keep making the same sort payments you make now, if that’s what you want to do.
Some like to say that HECM mortgages are expensive, but I always respond by asking: “Expensive… as compared to what?”
How much is a HECM compared to the other loan I don’t have to repay until I die or move out? Because there isn’t one of those, so there’s really nothing to which you can compare a HECM mortgage.
There’s absolutely nothing to be afraid of, or nervous about…
The Home Equity Conversion Mortgage, or HECM for short, is a program created by Congress, regulated by the U.S. Department of Housing & Urban Development (HUD), and it’s insured by the FHA, so it’s pretty much just like any FHA loan… except that you don’t have to pay it back if you can’t or simply don’t want to… or you can pay it back at whatever pace you’re comfortable.
And yes there are special rules and restrictions that pertain to a HECM mortgage and it’s very important that you understand all of them before you decide to switch, but I don’t care what you may have heard, reverse mortgages are NOT complicated and they’re NOT scary. In fact, they’re quite easy to understand and they can provide tremendous peace of mind as you navigate your way through what could very well be decades of retirement.
From my experience talking with seniors about their mortgages…
For almost six years, I’ve been writing about the financial and foreclosure crises in order to help homeowners better understand what happened, and to help them better get through the loan modification process with their bank or servicer. I’ve literally talked to hundreds if not thousands of seniors who are homeowners and found themselves at risk of losing their homes to foreclosure for any combination of reasons listed above.
And you want to know something… NONE of them saw it coming. NONE of them thought they’d ever be in the position in which they found themselves.
Some were pushed into foreclosure as a result of health problems, some were laid off from jobs, others got stuck with some huge medical expenses… and every other possible reason that comes along with being in your retirement years when the economy falls off a cliff… while you still have a mortgage to pay each month.
And essentially none would have been in that position had they been making payments on a reverse mortgage instead of the mortgage they had during their working years, because with a reverse mortgage, as long as you can pay your property taxes and insurance, and it’s still your primary residence, you and your spouse can remain in that home for as long as you both live… whether you make payments on the loan or not.
REVERSE MORTGAGE INTELLIGENCE… Coming Soon.
Now, I’m not saying that anyone should have known about any of this. The fact is that this article appears to be the first in the country to propose switching to a reverse mortgage while continuing to make payments, assuming your goal is to pay off your mortgage, and assuming it’s something you can do, of course.
It’s all part of what I call “Reverse Mortgage Intelligence,” and I’ll be launching the new site, ReverseMortgageIntelligence.com soon. It will be the place for intelligent analysis and discussion on the numerous applications for Home Equity Conversion Mortgages, and other reverse mortgage products.
If you want to know how you might use a reverse mortgage to protect your home in the future, or if you want to know about any of the other ways you can benefit from using a Home Equity Conversion Mortgage in your retirement years, you can contact me by sending an email to:
I have a team on call that includes experts in reverse mortgages, a CPA, and an estate planning attorney that can answer your questions and run the numbers so you can compare all of your options and make the best decision for your specific situation.
Whatever you do, don’t ignore the reverse mortgage option just because of what you may have heard or read, because things have changed and as a result there are new ways of looking at, and using reverse mortgages that may make sense for you.
Frankly, in my opinion, the industry has not done a good job at providing information on reverse mortgages in the past, the government sites can be difficult to understand, and the media has been absolutely awful when it comes to providing any sort of balanced reporting on the subject. (You can read my recent article on the media’s coverage of reverse mortgages here: Why the Media Misinforming Seniors About Reverse Mortgages is Wrong and Even Dangerous.)
That’s why I’ve decided to launch ReverseMortgageIntelligence.com.
At the end of the proverbial day, I don’t care what you decide to do… but I do care about you having accurate facts and intelligent insight upon which to base your decisions. Once you have the facts, I’m sure you’re more than capable of taking it from there.