The average debt held by senior citizens has increased to $50,000 in 2010, up by 83% since 2001. People over the age of 65 are facing a tough time in paying their mortgages due to mounting debt levels.
In 1992, only 24% of homeowners above the age of 62 had mortgage debt. In 2010, the number went up to 42%.
According to New York Fed consumer credit panel data, the average student loan balance grew 886% between 2003 and 2015 for 65-year-old.
According to National Retirement Index (NRRI) findings, '52% of households are at risk of not having enough to maintain their living in retirements.'
Many senior citizens struggle to meet their ends each month. Despite having a self-owned property, they can't take any action to ease off some debt mountain. With a mortgage payment, the available cash keeps on decreasing.
According to Accenture study, $30 trillion will be transferred by baby boomers to their heirs.
With the rising costs of medical treatment, inflation, lack of regular income, increasing life expectancy, converting the home equity into cash turns out to be a lucrative option for the retirees.
For seniors, home equity is a valuable resource for the living a decent quality of life.
How can the seniors avail this opportunity?
With the help of home equity conversion mortgage (HECM), popularly known as a reverse mortgage, senior citizens ( age 62 and older) turn their home equity into a lump sum of cash, line of credit or monthly cash payment.
With a traditional mortgage, the borrower makes payments to the lender with the property as collateral. If the borrower defaults, the lender has the right to sell the property to clear the mortgage debt.
According to U.S. Department of Housing and Urban development, seniors seeking for reverse mortgage must fulfil the following conditions:
- Be 62 years of age or older
- Own the property outright or paid-down a considerable amount
- Occupy the property as your principal residence
- Not be delinquent on any federal debt
- Have financial resources to continue to make timely payment of ongoing property charges such as property taxes, insurance and Homeowner Association fees, etc.
- Participate in a consumer information session given by a HUD- approved HECM counselor.
Benefits of Reverse Mortgage Plan:
- According to Internal Revenue Service (IRS), The payment received are free from the income tax because it is considered as a loan, not income.
- The payment doesn't affect Social Security or Medicare benefits.
- The borrower doesn't owe more than the house real value, even on getting payment more than worth of the house.
- If you think lender takes over the ownership of borrower's home, you are under the wrong impression. Apart from being responsible for payment of the repairs, taxes, and maintenance, borrowers retain the title to their home.
- HECM borrower don't need to make the payment until he/she sells the home, passes away, move out or fails to fulfil the terms of the mortgage.
- Reverse mortgages are non-recourse loans. If the borrower defaults on the loan, the lender can't use borrower's other assets to meet the outstanding balance on the loan.
- The equity, left after paying the cash, interest and other HECM finance charges, are transferred to heirs. Most importantly, there is no transfer of debt to heirs or estate.
- Reverse mortgage is insured by the U.S. federal government and is only available through an FHA approved lender.
It's always good to seek the expertise of a qualified financial advisor before applying for such a mortgage plan.