It is a common misconception that reverse mortgages run a high risk of foreclosure. This is largely due to a lingering bad reputation that reverse mortgages earned prior to the 1987 Housing and Community Development Act, when the government systemized reverse mortgages through the Home Equity Conversion Mortgage (HECM) program. However, today all HECM reverse mortgages are heavily regulated and there are many protections in place to help prevent borrowers from defaulting on their reverse mortgage. In fact, foreclosure is more likely with a conventional mortgage than with a reverse mortgage. Conventional mortgages have a default rate of 4.8% while reverse mortgages funded after the implementation of financial assessment protocol hold a default rate of only 1.2%.1,2
The reality is that more seniors today are struggling to pay off their housing debts than in past decades. Prior to 1990, foreclosures on senior homes were much less common. One change that may be contributing to the growing struggle for seniors to make ends meet is the rising number of homeowners who carry mortgage debt into retirement. In 1989 only 21.8% of homeowners age 65-74 had any housing debt.3 As of 2016, that number has grown to 38.8%.3 For homeowners over the age of 75 the figure is even more concerning with 26.5% carrying mortgage debt in 2016 compared to only 6.3% in 1989.
On top of a growing percentage of senior homeowners holding debt, the amount owed has grown significantly. According to the Federal Reserve’s inflation adjusted historical survey data on consumer finances, in 1989 homeowners age 65-74 owed $30,800 on their homes, while that same group owed $114,900 in 2016.3
Retirees with existing mortgage debt face a difficult situation. They have a fixed income with high monthly living costs. These payments put limitations on retirees’ lifestyles and can lead to foreclosure if they are unable to keep up with their monthly payments after they stop working.
A reverse mortgage may be the answer for seniors who have built up equity in their homes and wish to eliminate the burden of an existing mortgage. Reverse mortgages do not require monthly payments and do not become due until the last borrower no longer occupies the home as their primary residence or fails to meet the loan obligations.5 Retirees may be able to improve their monthly cash flow and live a more comfortable lifestyle, by using a reverse mortgage to pay off their home or simply access their home equity to supplement their retirement income.
If you are a homeowner 62 years of age or older and are still paying off your home, you may be able to use a reverse mortgage to pay off your existing mortgage4 and eliminate your monthly payment.5 To learn more contact a licensed loan advisor at 1 (800)976-6211 or click here to request a no-obligation eligibility assessment.
1 New View Advisors. Financial Assessment is Working (Part IV). http://newviewadvisors.com/commentary/
2 Mortgage Bankers Association. Mortgage Foreclosures and Delinquencies Continue to Drop. https://www.mba.org/2016-press-releases/feb/mortgage-foreclosures-and-delinquencies-continue-to-drop
3 Survey of Consumer Finances (2017), Historic Tables and Charts (Estimates inflation-adjusted to 2016 dollars) (as of October 31, 2017) [Microsoft Excel spreadsheet]. Sheets: Table 13 89, and Available from: https://www.federalreserve.gov/econres/scfindex.htm
4 Your current mortgage(s) and any other existing liens against the property must be paid off at or before closing.
5 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.