Heating Bill

Q: We have lived in our house for the past 48 years. Last year we prepaid our oil bill up to $4,300 on a Bank of America credit card which now has a balance of $8,000.

We pay $300.00 per month on our credit card debt. Our mortgage payment is $647 per month. We also have a car payment of $269 per month, which will be paid off by May 2009. Our income is around $38,000.00 a year. My husband does not have a very good credit rating, but mine is excellent.

We are both worried about how to keep our home and continue to pay these heating costs. I hope we do not have to move out as we have an older son living with us. Any advice would be greatly appreciated.

A: I’m afraid there are no easy answers for you. You already know you're living beyond your means. The fact that you have lived in your house for 48 years does not mean that you'll be able to stay there now, whether your older son is living with you or not.

These major expenses are running about $1,200 per month (car, mortgage and credit card debt). Another $500 per month for heating oil comes to $1,700, or more than half of your gross income. I can tell that times are tight.

Your choice is to either bring in more income or sell the house and move. Heating oil isn't going to be much, if any, less expensive next year. You can't keep putting $4,300 per year on a credit card – you can't afford the minimum payments.

It’s time to look at your longer-term options. I don't know how much of a balance you have left on your mortgage, or what it is worth (hopefully it has appreciated substantially in 48 years), but you have a couple of choices.

First, if you have enough equity in your home, you can think about getting a reverse mortgage. A reverse mortgage taps your equity and will use that to both pay off your loan and perhaps give you an additional stream of income. It is available to people who are 62 and older and on the house that is their primary residence.

The downside to a reverse mortgage is that it's expensive and it uses up your equity. If you're married to the idea that you want to leave your children an inheritance, you have to know that a reverse mortgage is going to eat up a lot of your equity. But it allows you to stay in your home.

Your other option is to sell your home (hopefully you're in a neighborhood which has retained its value) and move to a rental apartment. Of course, if you're living in an area where a 2-bedroom, 2-bath rental unit would cost more than the $650 per month you're paying for your mortgage, taxes and insurance, this wouldn't be a great idea unless the extra equity you're unlocking allows you to get rid of your debts and frees up your cash flow.

I suppose you could also rent out a room in your house, get another job, or have your son contribute to your income (unless he is disabled or perhaps is already contributing). But really, I think it will come down to selling and renting, or getting a reverse mortgage.

NOTE: Ilyce R. Glink’s latest ebooks are “Credit Scoring Secrets” and “How to Find a Great Real Estate Agent,” which are available at her new, all-video website, www.expertrealestatetips.net. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. You can also write to Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact her through her website, www.thinkglink.com © 2008 by Ilyce R. Glink. Distributed by Tribune Media Services