Mortgages for Seniors: Everything You Need to Know
Is it ever too late to take up a mortgage? Usually, your earning ability determines your chances of taking up a mortgage. This is easy when you’re younger, with years of stable income ahead of you. Then years go by, and you’re in your 60’s or 70’s. With retirement at arm’s length, if not retired already, the process gets a bit more complicated. You may still be earning a salary at the moment, but that will no longer be the case when you retire. Will you still be in a position to make the payments then?
Is the home-buying procedure for seniors any different?
You may be surprised to note that lenders are not concerned with your age as much. Their principal concern is your ability to pay. Whether you’re 35 or 65, they’ll gauge you depending on your financial status. Of vital importance, here are your income, credit score, credit report, and assets. As a senior applicant, in addition to a solid financial history, you need to demonstrate your ability to continue making regular payments even when you’re no longer on a salary.
When you’re employed, you submit W-2s indicating your salary. Once you retire, the lender is interested in your retirement funds from which you will be receiving a residual income. It could be social security, pension, IRA, or 401(k) accounts. Mention any other residual income that you may have. It could be in the form of trust funds, bonds, dividends, or even business profits.
Keep in mind that some of these accounts like 401(k) and IRAs, will only be paying you for a limited time. Lenders will be keen on the expiry date, only banking on income streams that will be running for 3 years or more.
Factors to consider before taking a mortgage
Retirement should be a time to relax and unwind after years of working and bearing all sorts of bills. Do you really want to continue holding yourself down with additional costs? Research shows that more and more Americans are carrying mortgage debt to their retirement compared to previous years. It makes little sense to spend your sunset years struggling with substantial monthly repayments.
Remember, the cost of healthcare is also at its peak in your 60s and 70s. You don’t want to be struggling with ill health since you spent the bulk of your income on servicing the mortgage, with hardly any finances left for quality healthcare.
Take up a mortgage only if you can manage to pay it comfortably. The burden of a mortgage is not only financial; it’s also mental. Do not compromise your well-being in the process.
What about reverse mortgages?
This is a loan where you put up your house as a guarantee. In other words, you tap into your house’s equity. This service is only available to senior homeowners, 62 years or older. This loan comes in handy when there’s no longer a steady income. What’s more, it does not require to be paid back right away. The payment is only demanded once the senior vacates the premises or passes away.
The downside of a reverse mortgage is that it can leave the family with a heavy burden of repaying the loan. Once the senior passes away, an allowance of 6 months is granted, after which the payments must commence. Depending on the circumstances, that can be a challenge. The family may turn to personal loans for fair credit and allow them to save the home.
As will all matters finance, and especially as you grow older, the life-saver is early planning. You can then be sure of enjoying your golden years and leaving your family debt-free; if anything, they can inherit your assets when you’re gone.
Mortgage refinancing/home equity loans
Refinancing means that you get a financial institution to pay off the existing mortgage and replace it with a new one. This can seem appealing to seniors when they no longer have a regular income. The new mortgage comes with new terms which may be more favorable: lower interest rates, longer/shorter term, convert from fixed-rate to adjustable-rate or vice versa, tap into home equity loan, and so on.
Refinancing is sometimes a good idea, and sometimes not. Remember, the move comes with additional fees, which then add on to the loan. Refinancing can be done in the early stages, but if you’re on the tail-end of loan repayment, say with 10 years or less remaining, it is advisable to stick to the original mortgage.
A home equity loan allows you to borrow a lump sum then make a monthly repayment. This option is less common, though. In addition to attracting extra fees, it puts the house at risk of foreclosure in cases of nonpayment.
To refinance or not? Well, every case is different. There’s no one-size-fits-all here. Research widely and talk to financial experts before you settle on your decision.