The number of American seniors carrying mortgage debt is growing, and that number is expected to increase as the COVID-19 crisis continues to displace workers and burden retirement accounts. The financial crisis hit millennials when they were preparing to enter the workforce as well, but boomers are especially pressured as their career paths were supposed to nearing retirement. These are supposed to be the primer earning years for many boomers. “In the U.S., some 9.18 million homeowners age 65 and over have mortgage debt, according to federal data analyzed by the Urban Institute. That’s up nearly 60% from 5.82 million a decade ago. according to separate federal data analyzed by Harvard University’s Joint Center for Housing Studies,” WSJ reporter Christina Rexrode writes. “Homeowners 65 and over who have mortgage debt owe a median of $72,000, according to separate federal data analyzed by Harvard University’s Joint Center for Housing Studies.”
People tend to purchase their first homes at younger ages, then upgrade as their careers develop. This standard practice tends to extend mortgage payments for years and add interest payments. With this increase in mortgage debt, coupled with the potential for job loss late in a career, many people will have to postpone their retirement plans. Many people may be susceptible to foreclosure due to this economic shake-up so late in their careers. “There are definitely some signs of potential trouble ahead,” said Jennifer Molinsky, a senior research associate at Harvard’s Joint Center.
Being the “sandwich generation,” boomers are in a difficult situation where they are taking care of their parents, while still supporting their children (and paying for their student loans).
There is also a rise of baby boomers who bought homes in the last few years that haven’t had enough time to build home equity; In 2019, 11% of first-time homebuyers were 55 or older, the highest in two decades of record-keeping, according to the National Association of Realtors.
“Three decades ago, only about 20% of U.S. homeowners 65 and over had mortgage debt, according to the Joint Center. Economists calculate that about 40% of older Americans today have housing debt, and the median amount they owe has quadrupled after adjusting for inflation.” WSJ reporter Christina Rexrode writes.
“Boomers, unlike their parents, didn’t grow up in the Great Depression or celebrate paying off a mortgage with a note-burning party. They are more comfortable with debt as a strategic financial tool and don’t view tapping their homes for cash as the last resort that their parents did.”
Another aspect is that many baby boomers choose to carry debt into retirement for two main reasons; 1) The cost of financing is extremely low by historic standards, and 2) They want to live out their retirement years in larger, more costly homes, often in costly active adult communities. Sure, many such homeowners could downsize to a 2-bedroom ranch on the other side of town. While most consumer advocates will frown at mortgage debt late in life, many baby boomers want their ideal retirement. All forms of cash flow and retirement luxuries have costs. Some choose to reduce those luxuries. Others choose to continue to pay mortgage payments. For those that don’t wish to be burdened with a monthly repayment obligation, the reverse mortgage will gladly remove that burden in exchange for interest accruals.
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