“I lost my job during the pandemic. Now I have $40,000 in credit card debt”. Similar tales of economic devastation as a result of the Covid-19 pandemic are not limited to younger working Americans. In fact, many older workers who were preparing for retirement now find themselves saddled with much more debt than they had one year ago. Some tapped into their retirement savings without penalty thanks to special emergency provisions of the coronavirus CARES Act.  The true impact of the pandemic on those approaching retirement remains to be seen. [read more]

Unemployment checks and stimulus payments only went so far in mitigating a job loss, a reduction of hours, or the increased cost of living as inflation continues to surge. As a result many may consider postponing retirement or working a side-hustle to bring in a bit of extra income each month. The Wall Street Journal reports, “The Labor Department reported Tuesday that its consumer-price index increased 5.4% in June from a year earlier. Excluding volatile food and energy categories, prices rose 4.5% from a year earlier, the most in 30 years.” Older homeowners feeling the squeeze of inflation or cut in income have several choices. Cut expenses, work longer, get a part-time job, start taking Social Security benefits earlier or later, or perhaps looking to their home’s value.

Options are your best asset when facing a financial challenge. While every older homeowner may not need to seriously consider getting a reverse mortgage, millions should but never do either from a sheer lack of awareness or fear having been told by friends or the media to avoid the loan altogether. Such prejudices preemptively eliminate a strategy when practical solutions are needed most. With this in mind we should discuss what options the homeowner has considered so far and why they have not chosen them.

Here are several alternatives to a reverse mortgage that may be considered and their benefits and liabilities.

First, refinancing into a lower interest rate. While this may lower the monthly principal and interest payment a couple hundred dollars each month- many are restarting their amortization and in effect will be saddled with required payments for decades.

Then there’s the cash-out refi. While this certainly borrowing at a low interest rate the homeowner’s monthly payments may actually increase with a higher starting principal loan balance.

Others may contemplate selling and downsizing to reduce monthly expenses but few do preferring to stay put . Getting a HELOC or home equity line of credit sounds appealing but there’s still a required monthly payment and payments will increase after the initial draw period expires.

Most of the so-called alternatives to reverse mortgages presented in the press are short-term solutions for a long term problem. In other words, they focus on the immediate need often ignoring the enduring need to meet their monthly cash flow challenges.

All things considered, despite short-term unemployment bonuses, mortgage forbearance, and stimulus checks millions of older Americans are in need of a long-term solution and strategy that helps meet their needs for decades to come- not one that gives them a cash infusion and new debt that further strains their cash flow. [/read]