Using a Reverse Mortgage to Get Out of Tight Spots
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Homeowners across the U.S. are facing tight financial situations brought on by the expiration of teaser rates on adjustable rate mortgages (ARM) that seemed like such a wonderful deal just a few years ago. According to Forbes, nearly 2 million homeowners are expected to see their adjustable-rate mortgages reset at higher rates by the end of 2008.
And the problem isn’t just isolated to younger homeowners who bit off more than they could afford. Plenty of senior homeowners are finding themselves in this situation as well. But seniors are luckier because they have available a credit repair tool that’s not an option for homeowners under age 62: reverse mortgages.
An article in Forbes today discusses the growing use of reverse mortgages by seniors to get out from the squeeze. But why incur stiff closing costs just to replace one adjustable rate loan with another at, perhaps, no better interest rate?
Peace of mind.
The great appeal of a reverse mortgage is that there are no monthly loan payments to the bank. Taking care of a burdensome loan with a reverse mortgage can immediately free up social security and other income sources to be used for other things. As one senior quoted in the Forbes article says “It took a big worry off our shoulders. Everything is set until we pass away.”
Of course there’s myriad concerns that need to be addressed before using this kind of strategy: what will it do to any bequest plans, will you truly be able to stay in the home until death, is there enough equity in the home to cover the outstanding debt? Still, if you’re a senior homeowner facing this type of situation, you may want to investigate whether a reverse mortgage can help you out.
On a related note, IndyMac has released its 2007 Financial Freedom Senior Sentiment Survey, which puts some real numbers on the level of debt that retirees face:
Social tagging: Reverse Mortgage > Reverse Mortgage Tips > reverse mortgage usesDebt in Retirement
While seniors ranked avoiding debt as their top saving strategy during retirement, a surprising 27% expect to have debt in retirement and 40% expect to have mortgage debt. Seniors revealed some startling trends:
Non-mortgage Debt
o 59% of seniors with debt have at least $15,000 and 12% have more than $100,000;
o 17% never expect to pay it off;
o Health care expenses topped the list of sources of debt, followed by auto loans and home repairs;
o Men tend to be more in debt than women.Mortgage Debt
o 63% owe at least $50,000;
o 31% owe more than $100,000;
o 56% expect it will take 10 years or more to pay it off;
o 11% never expect to pay it off.
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