Can't Afford Mortgage After Retirement

Starting With the Budget: Income, Expenses, and Benefits You May Not Be Using

Before any loan enters the picture, it helps to see the whole month on one page. A budget review lists every income source: Social Security, any pension, and withdrawals from retirement accounts. It then lists fixed housing costs, such as the mortgage's principal (the amount borrowed) and interest, property taxes, homeowners insurance, and homeowners association dues if there are any. Last come the costs that change from month to month, such as food, medicine, utilities and transportation.

A review sometimes turns up help that was never claimed. Supplemental Security Income (SSI) is a federal monthly payment for people with low income and few assets who are older, blind or disabled. Medicare Savings Programs are state-run programs that can help pay Medicare premiums and other costs. LIHEAP, the Low Income Home Energy Assistance Program, helps with heating and cooling bills. SNAP, the Supplemental Nutrition Assistance Program, helps pay for food. Each has its own eligibility rules, which the program office applies.

The Consumer Financial Protection Bureau notes that state and local programs can help with utilities, fuel and home repairs, and that information about these and other benefit programs is available through benefitscheckup.org.

For many households, a careful look at the full picture turns up help that was sitting unclaimed.

Talking to Your Mortgage Servicer: Forbearance, Repayment Plans, and Loan Modifications

The company to call first is often the one already holding the loan file. A mortgage servicer is the company that collects the monthly payments and manages the loan account. It may not be the lender that first made the loan, and its name appears on the monthly statement.

A servicer may offer one of three kinds of help, each subject to its own review of the borrower's situation:

• Forbearance. This is a temporary pause or reduction in payments. It is not forgiveness: the missed amounts are still owed later.
• A repayment plan. This is an agreement to catch up on missed payments over time while the regular payment continues.
• A loan modification. This is a permanent change to the loan's terms, such as the interest rate, the length of the loan or the principal, that lowers the monthly payment.

Calling before a payment is missed usually leaves more room to talk. When payments stop and stay stopped, the loan can go into default, meaning the borrower has broken the loan's terms, and that can lead to foreclosure, the legal process a lender uses to take and sell the home. A housing counselor approved by HUD, the U.S. Department of Housing and Urban Development, can help a homeowner prepare for these conversations.

The servicer already holds the loan file, and a phone call can open doors that are not advertised.

Property Tax Relief and Other Local Assistance Programs

Even when the mortgage itself cannot change, the tax bill sometimes can. Property taxes are part of the true monthly cost of a home, and states and counties may offer relief for older homeowners or those on fixed incomes. The CFPB says that many localities have programs to help with property taxes and points readers to the county or town tax office.

The relief usually takes one of three forms. An exemption lowers the assessed value, the value the tax is figured on. A deferral postpones payment of the tax until later, often until the home is sold. A freeze locks the assessed value so the tax does not rise with it.

Who qualifies, the income limits and the filing deadlines differ by state and county. The local county assessor's or tax collector's office is the source for the rules that apply to a particular home. The federal Administration for Community Living supports local aging services that can help older adults find these and other assistance programs nearby.

A lower tax bill can ease the monthly squeeze even when the mortgage itself stays the same.

Selling, Downsizing, or Renting Out Part of the Home

For some homeowners, letting go of this particular house is a choice made with clear eyes, not a defeat. Each version of it trades different things.

Selling and moving to a less expensive home or a rental. A sale turns home equity into cash and ends the mortgage. It brings moving costs and sale costs, such as agent commissions and closing fees, and it means leaving the home.

Downsizing to a smaller home that is owned. This can shrink the mortgage payment or remove it. It still involves the costs of selling and buying, and a new purchase process.

Renting out a room or an accessory dwelling unit. An accessory dwelling unit is a separate small living space on the same lot, such as a converted garage or a backyard cottage. Renting one out can bring in money without moving. In return, the homeowner takes on a landlord's duties, likely a lease agreement, and less privacy.

Home Equity Loans, Lines of Credit, and Cash-Out Refinancing

Several loans let a homeowner borrow against the house while staying in it. Each draws on home equity, which is the difference between what the home is worth and what is still owed on it.

A home equity loan is a lump sum borrowed against the home and repaid in fixed monthly payments. It is separate from the existing mortgage, so the homeowner then has two payments.

A home equity line of credit, or HELOC, is a credit line secured by the home. The borrower draws money as needed up to a limit, and the payments change with what is borrowed and with the rate. How it compares with a reverse mortgage is explained in reverse mortgage vs HELOC.

A cash-out refinance replaces the current mortgage with a new, larger one and pays the difference in cash. The new monthly payment may be higher or lower, depending on the new rate and the length of the loan. The CFPB cautions that taking on a new 30-year mortgage when nearing retirement can become a hardship later.

All three put the home up as collateral, meaning the lender can take the home if the loan is not repaid. All three require monthly payments. Lenders look at income and credit when deciding, which can be harder on a fixed income. Each trades access to equity now for a new or larger debt. These and other routes are compared in money out of your house without selling.

What a Reverse Mortgage Actually Involves

The appeal of a reverse mortgage, when a monthly payment is the problem, is easy to see. It is also easy to misunderstand. A reverse mortgage is a loan that lets a homeowner aged 62 or older borrow against home equity without making monthly mortgage payments, as long as the loan's requirements keep being met. It is a loan, not income, and the CFPB puts it plainly: it "is not free money."

The federally insured version is the Home Equity Conversion Mortgage, or HECM. HUD says it is the only reverse mortgage insured by the U.S. Federal Government and is available only through a lender approved by the Federal Housing Administration (FHA). Under 12 U.S.C. § 1715z-20(d), an insured HECM must, among other conditions, be made by an approved lender to a homeowner who is, or whose spouse is, at least 62, who has received independent counseling and full disclosure of costs, and who lives in the home.

The key duties and limits sit together:

• The balance grows. Interest and fees are added to the loan balance each month, so the amount owed rises and equity falls over time.
• The home stays the principal residence. The borrower must keep living there, meaning there for most of the year.
• Taxes, insurance and upkeep stay current. The borrower must pay property taxes and homeowners insurance and keep the home in good repair.
• The loan comes due at set events. A HECM must be repaid when the last surviving borrower or eligible non-borrowing spouse dies, sells the home, or no longer lives there as a principal residence. The CFPB adds that it may come due sooner if taxes or insurance go unpaid or the home is not kept in good repair.

For a homeowner who still owes a mortgage, this matters. The CFPB explains that a HECM borrower must own the home outright or have a low mortgage balance that can be paid off at closing, using personal funds or money from the reverse mortgage.

A lender may pay the money, under the loan's terms and subject to approval, as a lump sum, a line of credit to draw from, or monthly payments, and some of these can be combined. The CFPB describes monthly payments as either a set number of years or for as long as the loan is kept up and the balance stays within the limit stated in the mortgage. A fuller walk-through is in how a reverse mortgage works.

Counseling with a HUD-approved counselor comes first. HUD lists counselors through its HECM Counselor Roster and at (800) 569-4287. The FTC notes that counseling agencies usually charge a fee, often around $125, which can be more, can be paid from the loan, and that no one can be turned away for being unable to afford it.

A reverse mortgage removes the monthly payment, but it is still a loan with real duties attached.

Watching Out for Scams Targeting Older Homeowners

Money worries can make a confident stranger's offer sound like relief. Knowing the common patterns makes them easier to spot.

Foreclosure rescue offers promise to save a home in exchange for an upfront fee or the signing over of the deed. They can leave the homeowner with less equity, or without the home.

Deed transfer schemes ask the homeowner to sign the deed over to someone who promises to handle the mortgage. Signing the deed hands over ownership.

Unsolicited offers to buy arrive with pressure to sell fast, often for less than the home is worth.

Reverse mortgages draw their own tricks. The Federal Trade Commission warns that some salespeople pressure borrowers to buy annuities or long-term care insurance and that no other financial product is needed to get a reverse mortgage. The CFPB notes that the Department of Veterans Affairs does not offer any reverse mortgage loans, despite ads that suggest it does. A pause, and a call to a HUD-approved counselor, is often the calmest first response to any offer like these.

Knowing these patterns ahead of time means a worrying offer is easier to set aside.

What to Think Through Before Your Family Decides

Families in this spot often feel pressure to pick something fast. Slowing down to answer a few questions usually makes the choice clearer.

• How long is the plan to stay in this home? A few years and the rest of one's life point toward different options.
• Is the problem temporary or ongoing? A one-time expense is different from an income that no longer covers the payment.
• Can family help, and what would that involve? Help with money, a shared home, or support with upkeep each changes the household.
• What matters most? Staying in this house, freeing up cash, lowering monthly bills, and leaving equity to heirs can pull in different directions.

Not every option fits every situation. Some trade-offs weigh more for one family than another, and the fit depends on the person's health, income, home and goals. Federal law expects the HECM counselor to cover this ground: under 12 U.S.C. § 1715z-20(f), counseling must include "options other than a home equity conversion mortgage that are available to the homeowner, including other housing, social service, health, and financial options."