Older Americans face mortgage challenges as they age, and federal agency warns of the dangers of mortgage debt in retirement
May 13, 2014
Baby boomers don’t like to be called seniors, but the fact is that more and more boomers are moving into the age 65 and older category and they’re doing it at a rate of 10,000 a day in America.
One of the challenges older Americans face as they age is housing.
A report by the Consumer Financial Protection Bureau shows older Americans face mortgage challenges including more mortgage debt, less affordable housing, and greater risk of foreclosure.
The main reason for the increase is the refinancing boom of the 2000s. Other factors include a trend among Americans to buy their first home later in life, provide small down payments, and borrow against their home equity to pay for expenses.
The report released Wednesday analyzed data from the Census Bureau, the Federal Reserve, consumer complaints submitted to the bureau, and other sources. The report’s highlights include:
- More senior homeowners with mortgages: Older consumers are carrying more mortgage debt into their retirement years than in previous decades. For homeowners age 65 and older, the percentage increased from 22 percent to 30 percent from 2001 to 2011. Among those aged 75 and older, the rate more than doubled during that same time period, from 8.4 percent to 21.2 percent.
- Median mortgage debt for seniors increased by 82 percent: From 2001 to 2011, the median amount older homeowners owed on mortgages increased 82 percent from about $43,300 to $79,000. In addition, many older Americans have also accrued less home equity than their age group did a decade ago. The result is less financial security and greater financial risk.
- Less affordable housing: More than half of the 4.4 million retired homeowners with mortgage debt spend 30 percent or more of their household income in housing related costs. This puts older Americans at greater risk of financial harm.
- Senior delinquency and foreclosure rates increased five-fold after financial crisis: From 2007 to 2011, the percentage of homeowners age 65 to 74 who were seriously delinquent in paying their mortgage increased from .85 percent to 4.96 percent. For those age 75 and older, it increased from 1.01 percent to 5.87 percent. While delinquency and foreclosure rates have decreased since 2012, foreclosure among older homeowners is still a significant problem. Older consumers have greater difficulty recovering from foreclosure than their younger consumers due to their increased health problems, cognitive impairment, and difficulties returning to the work force.
Managing mortgage debt in retirement
Because mortgage debt is such a significant issue for older Americans, bureau is issuing an advisory highlighting three issues that older Americans should consider while managing mortgage debt in retirement:
- Mortgage pay-off date: Because mortgage debt can be a consumer’s most costly monthly expense, consumers should consider the cost of mortgage payments while living on a fixed, retirement income.
- Home equity: The money put into a home can be an important asset and security, especially considering Americans are living longer and often face large health expenses in later life. Older consumers should consider their options before taking out a home equity loan or refinancing.
- Retirement income and expenses: People usually have less income when they retire. Consumers should know their retirement income and expenses, especially if they’re retiring with a mortgage.
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