 |
AKAMAI MONEY By
Greg Wiles
|
|
||
 |
|
|
|
||
|
|
|
Q. My 57-year-old brother is worried about paying his $85,000 mortgage, which runs 27 more years. He lives paycheck to paycheck, has limited savings and is required to retire by his company at age 65. He's already refinanced the mortgage two or three times.
A. Unless your brother wants to make mortgage payments until he's age 84, he should start considering his options.
This situation isn't unusual anymore, as there is some evidence that the number of people who retire while still carrying a mortgage is growing. That's a change from previous generations when most people tried to retire debt-free. In your brother's case, he'll still have about 19 years of payments left at age 65.
Here are some options if he already hasn't considered them:
The last option was suggested by two experts contacted by Akamai Money.
"If he's single and doesn't have anyone to leave it to, that might be one answer," said Timothy C. Lee of First Financial Planners in Honolulu. "It's a real solution for some people."
Reverse mortgages can be described as being the opposite of traditional mortgages.
Under a reverse mortgage, people who are at least 62 years old can receive payments from a lender based on how much equity they've built up in the property. In general, people whose home price is substantially above their mortgage debt can take advantage of the program.
Another difference with a traditional mortgage is the loan balance grows during the life of the loan. The loan ends when the person dies or moves out of the home permanently.
At that time, several things can happen depending on the residence's value, how much is owed and whether there are heirs who want the property. If the home is worth more than the loan amount, it can be sold and the excess distributed to heirs.
If the heirs want to keep the home, they can take out a traditional mortgage to pay off what's owed. The lender can't collect more than what the home is worth.
Your brother might qualify for this since it appears he bought his condominium at least three years ago and probably has seen significant appreciation in its value.
"He can use those funds to enjoy life and he still owns the property," said Nelson Totoki, president of Honolulu-based Legacy Mortgage.
"Basically what you're doing is utilizing the equity that you've build up over the years. You're using it versus passing it on to beneficiaries."
Some seniors eschew the product because they like the idea of passing the property on to family members. Reverse mortgage fees can be pricier than what are charged for traditional mortgages.
Lee said your brother needs to be mulling several other issues while planning for his retirement, including how he will pay for healthcare insurance and medical and dental expenses.
"Make sure he's covered this base, too," Lee said.
As with all of these issues, individual situations vary and it's best to seek advice from a financial professional.
Do you have a question about personal finance, taxes or other money matters? Reach Akamai Money columnist Greg Wiles at 525-8088 or gwiles@honoluluadvertiser.com
