Today, seniors owe a lot more money heading into retirement than ever before; and, the amount of debt has climbed sharply over the past decade.1 Many are just keeping up with the expenses of daily living which have become more and more difficult.
Debt Levels on the Rise
In recent years, older homeowners have taken on more debt when it comes to outstanding mortgages, home equity loans, and home equity lines of credit.
- 30 years ago, 24% of homeowners aged 65-79 had a median balance of $16,800. However, in 2016, 46% of homeowners aged 65-79 had a median balance of $77,000 of mortgage debt.2
Credit cards are another source of debt for retirees with many carrying credit card debt into retirement.
- In 2016, 42% of households headed by someone 65-74 years old reported credit card debt, a 10% increase from 1992. The median debt also went up in that timeframe, from $1,174 to $2,500.3
Many retirees are turning to credit cards to help with their basic living expenses like medical bills, prescriptions and unexpected household repairs or modifications. With many seniors living on fixed incomes, paying off their credit cards can prove to be difficult.
Increased Cost Burden of Households
A household is considered “cost-burdened” when 30% or more of its monthly gross income is dedicated to housing.
- In 2017, the cost-burden households for ages 65 and older grew to nearly 10 million, with 5 million of these households paying more than half of their income for housing. 4
For those whose housing costs exceed 30%, they are considered to be at the threshold of affordability. Many are likely struggling to pay for other basic needs, forcing difficult trade-offs. Retirees who are cost-burdened may choose to drop health care coverage or skip meals to save on costs, which may result in less than desirable outcomes in other areas of well-being.
How a Reverse Mortgage Can Help?
A reverse mortgage allows qualified homeowners, who are 62 or older, to access a portion of their home equity as cash. It can help improve cash flow by paying down credit cards and consolidating debt5, eliminating monthly mortgage payments6, and setting aside funds for future expenses. Reverse mortgage borrowers do not have to repay the loan as long as they live in the home as their primary residence, pay property taxes and insurance, and maintain the property according to the Federal Housing Administration (FHA) requirements.
If you are carrying a financial burden into retirement, a reverse mortgage may be able to help. Call 1-800-976-6211 to speak with a licensed reverse mortgage specialist who can answer your questions and provide you with an estimate of how much you may receive.
1 https://www.ncoa.org/economic-security/money-management/debt/
2https://www.jchs.harvard.edu/sites/default/files/Harvard_JCHS_Housing_Americas_Older_Adults_2019.pdf
3 https://creditcards.usnews.com/articles/how-seniors-can-get-help-with-credit-card-debt
4https://www.jchs.harvard.edu/sites/default/files/Harvard_JCHS_Housing_Americas_Older_Adults_2019.pdf
5Your HECM loan will accrue interest that together with principal will have to be repaid when the loan becomes due.
6 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.