It has been all over the news that at the moment senior citizens are staying in the work force for as long as possible so that they can have more money for their retirement. A main reason for this is because more Americans are approaching their older age with more debt than they used to, and the leading source of debt for senior citizens is mortgage debt. According to an article by the Chicago Tribune, “four out of five seniors own their home, …and over four million retirees as well as 30% of all older homeowners have mortgages to pay every month”. For retirees on a fixed budget, this can be extremely stressful, and at times difficult to pull off. Retirement should be a time of relaxation and enjoying time with family, not worrying about expenses or going back into the workforce. Although many senior citizens have retired with mortgages to be fulfilled, the median amount that seniors owe has almost doubled over the past decade alone. Let’s explore how to avoid this if possible.
There are options for senior citizens who feel the need to stay in the home, and also for those who are flexible enough to explore other living situations.
Refinancing with your current lender is a good option for those who feel it imperative to stay in the home. All of this is given that mortgage interest rates at the time are better than the one on your current mortgage. At this moment in time, rates are at record lows, so seniors should consider taking advantage of this situation while it lasts, because typically these situations do not last long. To explore this option, contact your current lender and evaluate what refinancing would entail in terms of long-term and short-term costs.
The lender may also provide the borrower with a loan modification. Senior borrowers are eligible for loan modifications when the borrower’s disposable income is at least the greater of $300 and 15% of net monthly income, 85% of the borrower’s disposable income is not sufficient to pay the unfulfilled debt obligation within 6 months, and the borrower’s overall monthly mortgage payments can be reduced by the greater of 10% of the original monthly mortgage payment or $100, as a result of the lender setting the interest rate at the mortgage market rate and amortizing the new loan over 30 years (HUD.gov). However, this must be thoroughly considered depending on how much the loan amount is, as older borrowers should be weary of another 30 years on the loan. On the same note, taking out equity lines of credit can be detrimental as they are second loans with terms of 15-30 years. One should seriously consider carrying debt for another 15-30 years in their old age and how that would impact their finances and lifestyle. Elders do not have the luxury of feeling the safe cushion of an income from a job to (slightly) alleviate the pain of mortgage debt.
If you do decide to stay in your home, try to avoid large renovations on the home. Stick to the bare minimum repairs required to make the home livable. There are also options out there to renovate homes to accommodate an elder’s lifestyle such as ramps and wheelchair friendly home modifications. It is important to explore government options for home modifications that allocate funds that make home accommodations for safety reasons.
If possible, budget what retirement with a mortgage will look like before you actually retire. Map out your projected fixed income and make sure a mortgage payment is doable along with doctor visits, food, and other necessary expenses. Failing to make a mortgage payment can put the home at risk of foreclosure, and that is the last thing a retiree wants to worry about. Mapping out the future is the best way to determine whether to stay or sell. This method of budgeting can also help in the decision of whether that second vacation home that you have dreamed of all of your life is in fact a realistic opportunity. We all dream of living next to the beach or the mountains to retire quietly and comfortably, but when the time comes the number one priority is not the fancy house—it is your financial future. What does that second mortgage payment entail, and how long will it take you to fulfill that debt? Be 100% comfortable that this investment does not end up yielding loss rather than profit and peace of mind.
Should your budget tell you that a mortgage is not in the books – that’s OK. There are plenty of options. The first option is to sell. Right now is a good time to sell as home price values are up throughout the country. Selling can easily get you out of the debt of a mortgage, provided that you are not already underwater on the mortgage. Selling can also provide you with extra money that can be better used towards your retirement rather than to mortgage payments. Due to low inventory, homes are selling relatively fast as well. The next step is to find an affordable, cozy rental within the budget that you came up with earlier. Ensure that you are doing all that you can in order to create a happy, healthy, and worry free retirement situation for yourself.