The number of financial products available to older homeowners is growing. Access to home loans, credit lines, and reverse mortgages appears to be improving. But which is the best option for you?
Rising Expenses & Uncertainty
Many older homeowners are on fixed incomes. The challenge many face is that expenses such as healthcare costs are not fixed. Healthcare costs certainly are not fixed.
At the same time more boomers and seniors are finding their kids aren’t financially supporting themselves. Fortune and The Pew Research Center reveal that even though unemployment for young adults has dropped to around 8% in mid-2015, even fewer are now living independently than in 2010 (just 67%). Yet, financial expert Dave Ramsey warns that “the biggest expense facing baby boomers today is not their children’s’ college bills, but parent’s elder care.”
Many retirees are finding they are far less flush than expected too. The stock market hasn’t been kind, and is still estimated to be around 60% overvalued. At the same time the Social Security Administration continues to warn that there isn’t going to be enough money to pay out what is due.
Thankfully trillions are being regained in home equity. Yet, many Americans are finding they are house rich, and cash poor again. Liquidity and cash is key to surviving and enjoying the next few years.
So what are the best ways to tap into underutilized home equity?
Conventional Mortgages, Second Mortgages & Credit Lines
The Mortgage Bankers Association and Mortgage Credit Availability Index shows that access to home mortgage credit has been rising since February 2012. Inman News credits this largely to the expansion of mortgage programs.
Conventional mortgages, second mortgages, and home equity lines of credit (HELOCs) are all options. Yet, the traditional versions of these loan programs come with a number of challenges and disadvantages for older homeowners.
Most notably this includes:
1. Difficulty in qualifying for home mortgage loans
2. The need to consistently generate income to pay mortgage payments
3. High interest rates on 2nd mortgages
4. Potential for lenders to cap or close credit lines during housing downturns
5. Leaving large debts, and monthly financial obligations for heirs