Looming credit card restrictions will limit access to funds and increase payment obligations.
George A. Downey, April 15, 2023
Confronted with the growing uncertainties of financial turmoil, inflation, recession, bank failures, and rising delinquencies, wary credit card issuers are pulling back to reduce risk. They did it before when the pandemic started in 2020, and they are doing it again. As before, credit card limits are being slashed and monthly payment obligations increased.
Seniors with debt are at greatest risk.
Especially vulnerable are older Americans on fixed income that rely on credit cards, as lower limits and higher payments may eliminate access to needed cash. While the threat to more affluent seniors may not be as severe, any debt obligations in retirement are a risk to financial security and longevity.
Debt won’t go away – consider the options.
The obvious problem with debt – it must be repaid or suffer the consequences. The questions are how and when? The traditional way of making debt payments is to draw from income and/or from savings, but that reduces cash flow for living expenses and potentially depletes savings needed later for planned or unexpected expenditures.
Home equity may provide a solution.
Thanks to the extraordinary increases in home prices in recent years, home equity is clearly the largest single asset most have. In fact, senior homeowners have amassed $11.7 trillion in home equity according to the S&P Case-Shiller Index. Huge numbers indeed, but it’s illiquid and can’t be used unless the owner(s) sell or borrow against it.
For those that don’t want to sell, or take on unwanted mortgage payments, a better solution may be a reverse mortgage that was designed specifically to meet the more limited resources and lifestyle needs of aging homeowners.
Reverse Mortgage Overview
• Loan terms are guaranteed – access to cash cannot be frozen, limited, or cancelled as long as the loan remains in good standing.
• No monthly payment obligations – voluntary payments are permitted but not required.
• Title to home does not change – the lender does not take any ownership in the home.
• Flexible withdrawal options – credit line, periodic payments, lifetime income, or cash as needed,
• Growing line of credit – the undrawn balance of the credit line grows (compounding monthly) providing access to more funds in the future.
• No maturity date – repayment not required until no borrower resides in the property.
• Non-Recourse loan – neither borrowers nor their heirs incur personal liability.
• Repayment of loan balance can never exceed the property value at the time of repayment.
Good standing – Borrower obligations are limited to:
- Keeping real estate taxes, homeowner’s insurance, and property charges current
- Providing basic home maintenance
- Continue living in the property as primary residence.
Good for some – not for all
Reverse mortgages are unique. They were designed to meet the varying needs of older homeowners that want to age-in-place. The terms, benefits and operation are different from traditional (forward) mortgages.
Education is key to understanding if one may be a suitable solution. The recommendation is to confer with a knowledgeable and experienced Certified Reverse Mortgage Professional (CRMP) to determine suitability and the best course of action for your situation.
TO LEARN MORE
Get the facts and determine if, or how, the various options to utilize housing wealth may enhance your individual needs and circumstances. For more information, visit the National Reverse Mortgage Lenders Association (NRMLA) website www.ReverseMortgage.org, or feel free to contact the author for a private consultation.
George Downey, Certified Reverse Mortgage Professional, (NMLS 10239), is the CEO and founder of Harbor Mortgage Solutions, Inc., Braintree, MA, a mortgage broker licensed in Massachusetts (MB 2846) and Rhode Island (20041821LB), NMLS #2846. Questions and comments are welcome. Mr. Downey can be reached at (781) 843-5553, or email: GDowney@HarborMortgage.com