Is Rising Mortgage Debt Threatening Retirements?

Older Americans are carrying more mortgage debt and have accumulated less home equity than their peers a decade earlier, according to a  report by the Consumer Financial Protection Bureau.

The median mortgage debt for those age 65 and older rose 82 percent to $79,000 from 2001 to 2011, according to the agency. And though delinquencies and foreclosures have decreased since 2012, they had increased fivefold between 2007 and 2011 among older homeowners, the CFPB reports.

"A home can be a place of security for older Americans in their retirement years - a roof over their heads as well as a valuable asset," Richard Cordray, director of the CFPB, said in a statement. "But as more seniors carry significant mortgages into retirement, they put themselves at risk of losing their nest eggs and their homes."

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Perhaps it's no surprise that the top complaints the CFPB receives from older consumers involve mortgages. Of the 15,500 complaints the agency received from those 65 and up from July 2011 to the end of last year, nearly one-third were mortgage-related, often involving problems with foreclosures, collections, loan modifications and loan servicing.

Since 2011, "home prices have increased in many markets across the country" while "delinquency and foreclosure rates have slowed or fallen nationwide," says Lori A. Trawinski, senior strategic policy adviser for the AARP Public Policy Institute. "We don't yet know specifically the impact on older Americans."

Trawinski, author of "Nightmare on Main Street: Older Americans and the Mortgage Market Crisis," says she expects to update that 2012 report later this year.

The CFPB report gives only part of the story, Trawinski says. We don't know, for example, why older consumers have taken on mortgage debt.

It may not be a bad thing, she says.

"As a society, we encourage people to accumulate wealth in home ownership and encourage them to do what they can to live in their home as they age," Trawinski says. "Sometimes that involves accessing your equity."

It could be that older borrowers lost a spouse and saw their Social Security and pension income drop, so they tapped the equity, she says. Or they could be using the equity to pay for home health care, rather than going to a nursing home.

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Whether to carry mortgage debt in retirement can depend on many factors.

The CFPB has issued an advisory for older homeowners about mortgages, which can be the biggest monthly expense for a retiree.

The agency says paying off a mortgage before retiring, for instance, can help people manage expenses later if their income suddenly drops.

Those who are refinancing or buying a home before retirement should consider taking a 10- or 15-year loan, instead of a 30-year term, the agency advises. They will still be working, so they can handle the bigger payments of a short-term loan, and there's less chance they will be saddled with a mortgage in retirement, the agency adds.

And older homeowners now thinking of tapping the equity in their home need to consider how they will pay for unanticipated expenses that crop up, the agency says.

Photo: Cogal/istockphoto

 

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