Danger of Prepaying Your Mortgage

QUESTION: About two years ago, we refinanced our home mortgage and obtained a 5.25 percent fixed-rate mortgage. We loved the low monthly payments. Then, about six months ago, my wife inherited enough money to pay off our mortgage in full, which we did. Next, I received an excellent buy-out offer from my employer to take early retirement, which I did. But now my former employer drastically cut my retirement pension and eliminated health care coverage. As I am only 63 and my wife is 57, we are not yet eligible for Medicare. I took early Social Security, but that doesn't help much. We are rapidly eroding our savings, which were drawn down when we paid off our mortgage early. We "maxed out" our home equity credit line and can barely afford the payments. What can we do? --Richard R.


DEAR RICHARD: Your situation shows why I constantly recommend not prepaying a mortgage in full unless you have so much money you will never need to borrow on your home equity. Obviously, that is not your situation.

Because you have insufficient income to qualify for a new home mortgage, except perhaps from a "loan-to-own" mortgage shark, your only viable alternative is a senior citizen reverse mortgage.

However, there is one little problem. Your wife is too young. To qualify for a reverse mortgage, she would have to quitclaim her half of the house to you.

Because you are only 63, with a long life expectancy, you won't qualify for much monthly lifetime reverse-mortgage income. I wish I could be more positive, but now you know why I do not recommend prepaying mortgages unless you have lots of spare cash.