My Comments: Most of you know that my wife and I recently downsized (we now have 60% of what we used to have!) to a new house in a nearby neighborhood. I never knew how much stuff we had. Deciding what to keep and find room for is truly an ordeal.
Financially, we accomplished this with what is known as a reverse purchase. From inception the plan was to use our money for some of the purchase and someone elses for the rest. The ‘someone else’ is a lender willing to advance about 53% of the price with the expectation of getting their money back at some point in the future when the last one of us leaves. There’s an insurance policy in the background that guarantees our heirs will not bear any financial burden if the loan exceeds the value of the house in the future.
As someone versed in financial planning for almost 40 years, I’ve decided to become a local expert in reverse mortgages, which includes reverse purchases. The idea is to help others avoid the need to make mortgage payments in a world of rising interest rates. Email me if you have questions.
By Michael K. Stanley
Millions of Americans are dragging their mortgage debt with them into retirement according to recent research from LIMRA and an AARP Public Policy Institute Study.
The added burden of a mortgage further complicates an already treacherous retirement environment for many due to the reverberating consequences of the global financial crisis.
LIMRA found that in 1989 the prevalence of mortgage debt for Americans age 65 to 74 was 22 percent. By 2010, that figure nearly doubled to 41 percent. And, due to depressed (albeit slowly rebounding home values) the amount of debt Americans hold on their homes has also grown.
LIMRA concluded that the median value of mortgage debt for people ages 65 to 74 was $70,000 in 2010 compared to $15,000 in 1989.
Although rising property taxes have also contributed to the debt, besides the financial crisis or perhaps more aptly, because of the financial crisis, many Americans are using home equity loans to fund health care and other expenses.
Although, traditionally, many older Americans downsize and sell their home in retirement, recent studies show that many older Americans are using home equity loans to fund expenses in retirement. And with declining home values, equity becomes reduced and seniors have trouble funding their emergency needs.
Although holding a mortgage allows for interest rate tax deduction, the portion of the mortgage payment that is applied to interest declines as the final payment approaches.