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Too Old to Refi?

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Posted On: 04/13/2016

QUESTION:

We’re looking for our first home. My father offered to provide us with 20 percent down, enough so that we will not have to pay mortgage insurance. We know this is an incredibly generous offer and we are very lucky, but we are worried. He wants to get the money by refinancing his home. Will lenders make a 30-year loan to a 70-year old?

ANSWER:

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The Census Bureau calculates that the U.S. has nearly 31 million citizens 70 and older. About 10 percent of the over-70 population, some 3.2 million people, remain in the labor force.

Among those not in the workforce, many older citizens receive Social Security benefits after a lifetime of work and get low-cost healthcare through the Medicare program.

Homes, a big expense in most personal budgets, are often mortgage-free among older Americans.

Lenders have every right to review someone’s finances before they originate a mortgage. What they cannot consider is the age of the prospective borrower.

According to the Federal Trade Commission, the Equal Credit Opportunity Act forbids credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age or whether you receive income from a public assistance program.

Your father has every right to seek a mortgage and has a solid probability of success given good credit, continuing income and sufficient equity.

In addition to a traditional mortgage, those aged 62 and above may consider a reverse mortgage. With a reverse mortgage there is no required monthly payment for principal and interest, and repayment is required only at the time the borrower moves, sells or dies.

Reverse mortgage are complex and a host of special rules apply. Borrowers can get an idea of how the program works using the free and anonymous reverse mortgage calculator provided online by the National Reverse Mortgage Lenders Association, www.reversemortgage.org.

Let’s say that your dad does obtain a mortgage and a few years down the road passes away. With a reverse mortgage the property is security for the debt; there can be no further claims against the estate or the heirs. With a forward mortgage, the debt is a lien against against the property and can be repaid through the sale of the home. However, if you want to keep the house then you might want to look at the Garn-St. German Act. It provides that the lender cannot prevent an assumption of the debt by family members when there is “a transfer to a relative resulting from the death of a borrower.”

Your father is trying to help his children, a decent and honorable thing to do. Be sure to proceed with caution. Encourage your generous dad to consult with an attorney who specializes in elder law and with a fee-only financial planner.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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