It can be a pitfall to carry mortgage debt into retirement: USA Today
As the number of seniors with mortgage debt after retirement has increased, so has the potential financial burden of making a regular monthly mortgage payment. Increases in inflation and the cost of living can overwhelm those living on a fixed income. according to an article published this week in USA today.
“Pension researchers warn that mortgage debt can be a pitfall in retirement,” the article said.
According to data from the Consumer finance research maintained by the Federal ReserveThe share of Americans aged 75 and older with mortgage debt has risen from 5% in 1995 to 25% in 2022.
The amount these same homeowners owe on their mortgages has also increased significantly, from an average of $14,000 to $102,000 over the same period.
An increase in home values has put older homeowners on a better financial footing in general, but if the majority of one’s wealth is tied up in the illiquid assets of home equity, then the presence of a regular mortgage payment will may not make older homeowners feel better off.
a 2023 study published by the Michigan Retirement and Disability Research Center from the University of Michigan, cited by USA Today, found that a “typical” retiree often does not have the financial resources or assets to adequately cover their mortgage debt.
“Researchers found that retirees with larger mortgages face greater financial risks. Households with more mortgage debt tend to delay retirement and spend less money once they retire,” the paper said. “They also tend to sell their homes sooner than retirees with a smaller mortgage or no mortgage.”
Experts have suggested a number of reasons for these changes. Homebuyers as a cohort are getting older, with 2023 data from the National Association of Real Estate Agents (NAR) showing that the average first-time buyer last year was 35, while the average returning buyer was 58. Baby boomers may feel comfortable taking on mortgage debt later in life compared to their older counterparts.
As for possible solutions, one suggestion is the usual route of downsizing: selling an existing home and using the sale proceeds to move into something smaller. But USA Today also mentions the option of using a reverse mortgage.
“It is a loan that allows a homeowner to tap into equity, using the home as collateral,” the outlet said. “The loan generally becomes due when the owner dies, moves or sells.”
The University of Michigan study “begs the question: What about reverse mortgages, and why aren’t they a reasonable part of the solution?” J. Mark Iwry, a non-resident senior fellow at the Brookings Institutiontold USA Today.
One possible answer was offered to the outlet: the ongoing reputational problems that have plagued the industry for years. USA Today also cites some of its own reports from 2019 that focused on certain actors in the reverse mortgage industry. It painted a bleak picture of the sector’s practices, some of which were challenged by other trade authorities.
USA Today did some additional investigative work on the reverse mortgage industry’s practices in 2019, and also published an op-ed on the topic written by a leader from the industry’s leading trade organization.
