Mortgage-burning parties in the U.S. may be going the way of home milk deliveries and polyester leisure suits.
A growing number of homeowners are reaching retirement age still owing money on their houses. The share of Americans 65 and older with mortgage debt rose to 30% in 2011 from 22% in 2001, according to a May analysis by the Consumer Financial Protection Bureau based on the latest available figures. Loan balances also increased, with the median amount owed climbing to $79,000 from $43,400 after adjusting for inflation, the data showed.
“There were old-fashioned beliefs probably 30 years ago” that included “you should pay off your house before you retire,” said Olivia Mitchell, executive director of the Pension Research Council at the University of Pennsylvania’s Wharton School in Philadelphia. “This is no longer the case.”
The increase in mortgage debt may influence labor-force dynamics as some older Americans find they’re unable to completely retire, needing extra cash to keep up monthly payments. It also diminishes home equity and wealth, making these households more susceptible to swings in the economy and curbing spending on things such as vacations and visits to grandchildren.
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“When they are hit with a financial downturn or an unexpected cost, they often are in a position where they don’t have the ability to recoup whatever losses they may have suffered,” said Stacy Canan, the deputy assistant director of the CFPB’s Office for Older Americans in Washington. Because a larger portion of income has to go to paying a mortgage, “there has to really be a dialing back of almost all other expenses.”
A surge in refinancing in the early 2000s — and to some extent the more recent wave in the post-recession years — is one reason mortgage debt grew, according to a 2012 analysis led by John Gist, a professor at George Washington University’s public policy institute in Washington. In addition, the ability to buy with smaller down payments during the housing boom and the acquisition of vacation homes also contributed.
The highest rates of refinancing occurred among boomers, with more than half of those born between 1946 and 1964 going through the process in 2004 and 2007, Gist found. Older Americans also tapped their home equity more often than younger generations, he said.
“People may be stretching out their debt payments,” Gist said in an interview. Because older Americans also drew on their home equity to finance spending or pay other debt, “we may be facing a situation where people are struggling.”
Leo Zawacky, 65, and his wife took out a 30-year mortgage in 2003 to buy a duplex a mile from the ocean in Atlantic Beach, Florida, and added a home-equity loan a few years later. Those became harder to service when Zawacky lost his job as a carpenter amid the housing crisis and was forced into retirement in 2008 when he couldn’t find work. The couple uses Social Security and disability checks to make payments on the two loans. They haven’t sold the house because, Zawacky said, it’s home.
“It is stressful to have that hanging on us, but we try very hard not to let it bother us,” said Zawacky, who makes wood-burning crafts with his wife to sell at local arts shows and supplement their income. Still, “we can’t do a lot of things we’d like to do,” including visits to family in North Carolina.Job Market
The job market hasn’t been kind to older age groups, which makes servicing debt more difficult. The median duration of joblessness for adults 65 years and older was 17.8 weeks in July, versus 13.5 weeks for those 25 to 34, Labor Department data show.
Having a mortgage is “a source of risk for these older households, particularly when you see what we find in the labor market experience,” Julia Coronado, chief economist at Graham Capital Management in Rowayton, Connecticut, said in a May presentation hosted by Wharton’s Pension Research Council.