Most people have emotional ties to
their homes because of family memories created there, but the responsibilities
that come with home mortgages can become financially burdensome to seniors.
There are many factors you should consider when thinking about applying for a
mortgage to buy, refinance or make improvements to your home.
Q: What should I keep in mind when considering
a mortgage loan?
you already own a home, consider whether it makes sense to stay in your current
home or to downsize. As children move out, a large home may no longer be
practical. Downsizing can both cash out equity from a larger home and reduce
monthly expenses by replacing a larger mortgage payment on a larger home with a
smaller mortgage payment on a smaller home. Moving to an apartment or
condominium without a yard or where much of the maintenance is handled by a
homeowner’s association is also an option.
If your home is already the right
size and you can afford to stay, you may want to consider refinancing your existing
mortgage loan. With proper financial planning, younger seniors can plan to
repay their mortgages before they retire. However, many seniors are not able to
retire without mortgage debt, and refinancing allows you to lower the interest
rate or reset the term of your existing mortgage. By resetting the mortgage
term, the outstanding balance of your existing loan will be spread out over a
longer period of time. Extending the term may increase the overall interest
charges you will pay, but it also will lower your monthly payments and free up
money for other monthly expenses. If you are on a fixed income, consider
refinancing from an unpredictable adjustable rate mortgage to a stable fixed
Q: Will I qualify for a mortgage loan?
eligibility for a mortgage loan generally will depend on your income, your
assets (checking, savings, stocks, bonds, IRAs, etc.), your credit score and
the value of the property that will be securing the mortgage loan.
who applies for a loan will be approved or will get the same loan terms, but lenders
must consider reliable income from part-time employment, Social Security,
pensions and annuities when making mortgage loan decisions. They must also consider
reliable public assistance income in the same way that they consider other
income. The Equal Credit Opportunity Act (ECOA) prohibits lenders from credit
discrimination on the basis of a number of factors, including your age and whether
you get public assistance. A lender may ask you for most of this information in
certain situations, but may not use it as the basis of a decision to reject
your mortgage application or to set your loan terms. If your mortgage
application is denied, the lender must give you specific reasons for the denial.
Q: Even if I qualify, how will I know if a
mortgage loan is right for me?
are many types of mortgage loans, including conventional home loans, FHA insured
loans, VA guaranteed loans for veterans, Rural Housing Service (RHS) guaranteed
loans, home equity lines of credit and reverse mortgages. Some loans have
strict qualification requirements while others are designed for lower income
mortgage loan carries costs that can vary with the type of loan you choose. Usually
there will be lender fees, an appraisal fee, title insurance costs and other closing
expenses related to the mortgage loan. You must also factor real estate taxes
and homeowners insurance into your budget. Usually you will be required to make
a down payment of between 3.5 percent and 20 percent, depending on the type of
loan and the bank’s requirements. While lower down payments can be appealing in
the short term, they come with higher monthly payments due to higher interest
rates. Smaller down payments also may require additional mortgage insurance, increasing
your total costs over the long term. However, making a higher down payment can
deplete your savings and investments. It is critical to consult a trusted
financial advisor and get independent financial advice before deciding which
mortgage product may make sense for you, and what terms best suit your
This “Law You Can Use” legal
information column was provided by the Ohio State Bar Association. It was
prepared by Adam Saurwein, an attorney in the Cleveland office of the firm of
Benesch Friedlander Coplan & Aronoff. Articles appearing in this column are
intended to provide broad, general information about the law. Before applying
this information to a specific legal problem, readers are urged to seek the
advice of a licensed attorney.
Labels: homeowners, housing, mortgage, mortgage loans, seniors