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Mortgage Debt Increasing for Baby Boomers

Posted on: May 16th, 2014 by Charles Faquin No Comments
Mortgage Debt & Seniors

Mortgage Debt Increasing for Senior Citizens.

In a break from traditional trends, the percentage of Americans age 65 or older with mortgage debt is increasing. Baby Boomers are working longer than their parents did to pay off debts, and some are forced to use retirement savings and fixed incomes to pay off their homes.

CFPB Study on Mortgage Debt of Seniors

In a recent study, the Consumer Financial Protection Bureau (CFPB) found that seniors have more mortgages than ever before, that their median mortgage debt has increased by 82%, and that more than 50% of seniors with mortgage debt spend 30% or more of their income on housing related expenses. Click here to see the full results of the study. Seniors with mortgage debt are faced with more potential problems than their younger homeowners if they become delinquent on their mortgages. If a senior loses his or her job, it may be more difficult to start a new career or find an employer that will hire someone at an advanced age. Additionally, seniors have a greater risk of health problems that could cause financial hardship from medical bills or missed work. These concerns place seniors with mortgage debt at a greater risk of default.

Planning Ahead on Mortgage Debt

Financial planning is important for many seniors due to fixed income and unforeseen or increasing healthcare expenses. A planned payoff date for mortgage debt should be included in any retirement plan. Also, setting a goal to pay off mortgage debt early, even before retirement will avoid mortgage problems at an advanced age. This may be done by refinancing the mortgage to a 10-15 year term and making higher payments in the short term.

Mortgage Modification: Advantages & Pitfalls

Mortgage Debt Modification

Mortgage Debt Modification May Help, but Proceed with Caution

Modification can be a helpful tool in handling mortgage debt in retirement if it lowers your interest rate and monthly payments. However, mortgage modification can be problematic if: 1) the loan payback term is extended several years; 2) the fixed interest rate is converted to an Adjustable Rate Mortgage (ARM); and/or 3) a balloon payment is added to the end of the loan term. Additionally, when taking out a Home Equity Line of Credit (HELOC), you should always ask yourself if the loan is absolutely necessary.

Bankruptcy a Potential Solution

If loss mitigation options fall through, Chapter 7 and Chapter 13 Bankruptcy may provide a solution. For someone that is out of work and willing to walk away from an underwater home, a Chapter 7 Bankruptcy can provide a “fresh start” by allowing you to walk away from your mortgage debt free. For someone with a steadier source of income, a Chapter 13 Bankruptcy can allow you to catch up on your mortgage debt free of late charges and delinquency fees while maintaining monthly payments. For someone faced with an insurmountable balloon payment, a Chapter 13 can break up the payment into 36-60 payments (depending on your income) and stop any foreclosure proceedings.

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