Percentage Over 65 Still Paying a Mortgage Doubles to 40%
According to a new report fromÂ Harvard Universityâ€™sÂ Joint Center for Housing Studies, as of 2010, â€ś40 percent of households 65 and up were still paying a mortgage.â€ťÂ In 1992, according to the report, there were only about 18 percent over 65 with mortgage payments.
The New York Times ran a story on September 11, 2014 about the reportâ€™s findings, and the author of that article felt it important to mention that the study, â€śreaffirms the common belief that retirees who own their homes outright are considerably better off than those carrying mortgages or paying rent.â€ť
What the Timesâ€™ article didnâ€™t bother to mention is that forty percent of households 65 and up amounts to millions of householdsâ€¦ and essentially all of them are at risk of foreclosure, because as the Harvard study also points out, â€śincome declines with age.â€ťÂ In fact, the study showed that the typical income for households aged 80 and up is less than half that of households aged 50â€“64.
Now consider that in this country today, one in seven is at least 65â€¦ by 2030, that share will be one in five. Today, one in 16 is now at least age 75â€¦ by 2040â€¦ it will be one in eight.
This trend towards still owing on a mortgage later in life should be particularly troubling because the over 50 population is projected to increase roughly 20 percent by 2030.Â And, since I think itâ€™s safe to assume that the percentage of todayâ€™s homeowners 50 â€“ 64 is considerably higher than 40 percent, it seems likely that the percentage of homeowners over 65 making mortgage payments is set to increase in the future as well.
Thatâ€™s a very serious problem looking forward because the report also showed that today a third of those age 50â€“64, have housing costs that represent a moderate to severe financial burden, and thatâ€™s certainly not going to lessen as they get older and their income falls.Â (The report defined â€śmoderately burdenedâ€ť as spending 30 to 50 percent of monthly income on housing costs, and â€śseverely burdenedâ€ť as spending more than half of monthly income on housing.)
BrilliantÂ retirement adviceâ€¦
And yet, both the Harvard study and the Times article seemed to think it an opportune time to provide the invaluable advice to aging Americans that because seniors who own homes free and clear are â€śbetter offâ€ť than those who donâ€™tâ€¦ more people should pay off their mortgages before retirement.
Well, hold the presses, weâ€™ve got a headline coming through.Â That is an absolute stroke of brilliance right thereâ€¦ pay off your mortgage BEFORE you retireâ€¦ and then youâ€™ll be better offâ€¦ I think Iâ€™m starting to get it.
Youâ€™re saying that Iâ€™d be better off not having to pay my bank a few grand in interest each month in order to stop them from foreclosing and evicting me?Â It makes complete sense, but I donâ€™t think many people know about this way of thinking.
I mean, how else do you explain 40 percent of 65 year-old homeowners still making mortgage payments each month?Â They must not know about the whole â€śbetter off by paying it offâ€ť thing.Â This is truly a message that needs to be spread among the aging populace with great vigor.
Does everyone understand the message here?Â What Harvard and the Times is saying is that youâ€™re better off paying off your mortgage before you stop working becauseâ€¦ well, Iâ€™m not sure exactly why, neither the article, nor the study actually explained that part, and since Iâ€™ve completely lost the ability to think for myself, I guess Iâ€™ll just have to wait for the Times to do a follow-up piece.
But for nowâ€¦ I think Iâ€™ll run down to the bank and pay my mortgage off tomorrow, I donâ€™t know why I didnâ€™t think of doing this sooner.
The only problem is that Iâ€™m a little short.Â Maybe I can get the bank to increase my overdraft protection so I can just write a check for the $550,000 I owe on my mortgage, and then I could just pay it off over timeâ€¦ like 30-40 years ought to do it.
So, thank you for that HARVARD and THE NEW YORK TIMES!
Okay, so I was talking to a mortgage banker this eveningâ€¦
I really happen to hear fromÂ a mortgage banker this evening and I asked him how business was these days, and he said it was okay in September and should be in October, but after that it looks a little spotty.Â He was happy to tell me that he just refinanced an 80 year-old man with a free and clear house.
I replied, â€śThat should be illegal.â€ť
â€śWhy?â€ť He said, completely confused at why I would say such a thing.
â€śBecause heâ€™s 80, you predatory shit-head, and if he wakes up in the hospital one morning, heâ€™ll still have mortgage payments, and now heâ€™ll have to make them out of savingsâ€¦ savings that heâ€™ll certainly need for other things too.â€ť
â€śBut, weâ€™re also paying off all of his other debt,â€ť he said with pride, as if doing a community service.
â€śYeah, thatâ€™s great.Â Youâ€™re turning short term unsecured credit card debt that could be discharged in bankruptcy and turning it into a 30-year mortgage so now if he misses a few payments he can end up in foreclosure.Â Thatâ€™s mighty white of you, youâ€™ll pardon the phrase.Â With friends like you he should be homeless in no time.â€ť
â€śWell thenâ€¦ what should he do?Â His daughter raided his IRA and now heâ€™s having trouble paying his bills.â€ťÂ I really donâ€™t think he had any idea what else the octogenarian might consider.
â€śSo, he needs incomeâ€¦ not debt.Â He shouldnâ€™t be allowed to get anything but a reverse mortgageâ€¦ that way, if he needs to miss payments in order to conserve his cash or whatever, he can do so without losing his home to foreclosure.Â He shouldnâ€™t be allowed to take out a thirty-year mortgage without going through counseling.â€ťÂ I was getting more and more serious about this.Â â€śI hope someone helps your mother out like this one day.â€ť
â€śThe guy doesnâ€™t want a reverse mortgage, I asked him.â€ť
â€śWhy,â€ť I had to know.Â â€śHe prefers the type of loan on which the bank can foreclose, is that it?â€ť
â€śBecause he wants to leave the home to his son.â€ť
â€śYeah, so what?Â He can still do that with a reverse mortgage.Â The only difference between him getting a traditional mortgage and a reverse one would be that should he ever need or want to skip whatever number of paymentsâ€¦ he can and with no adverse effects.Â With the mortgage youâ€™re putting him into now, heâ€™s got a pretty darn good chance of ending up in foreclosure if anything doesnâ€™t go according to plan.â€ť
â€śWell, he hasnâ€™t missed any payments yet, heâ€™s got an 800 credit score.â€ťÂ He was serious.Â Stupid, of course, but serious.
â€śThatâ€™s nice, so youâ€™re just betting that life after 80 will just be more of the same? Will his credit score be paying him in his 80s?â€ť
â€śLook, Iâ€™m just trying to help him,â€ť he said seeming to believe it.
â€śYeah, wellâ€¦ I hope someone helps you mother like that someday.â€ť
HERE ARE THE FACTS OF THE MATTERâ€¦
The conversation you just witnessed was a real one with a real loan originator at a mortgage bank, coincidently held as I was finishing making an entirely appropriate mockery of the conclusions drawn by the New York Times covering Harvardâ€™s new study of housing issues and their impact on older Americans.
Itâ€™s increasingly less incredible that beyond a few presumably alarming demographic statistics the Times transformed such a vital subject into such an prodigious and profuse waste of time.
However, at the same time, since it was reinforcing a key point Iâ€™ve been trying to make about older homeowners with mortgagesâ€¦ how retirement with a mortgage just isnâ€™t possibleâ€¦ and why a reverse mortgage solves the problem in the best possible way, I decided it was worth showing that at least Harvardâ€™s latest study understood the already large and growing problemâ€¦ if not the obvious answer.
And I wasnâ€™t sure exactly how to drive the point home in a not so subtle wayâ€¦ until I got lucky when a mortgage banker happened to tell me about the 80 year-old being helped into the refinance of a 30-year mortgage in order to pay off some credit card debt and give him some cash besidesâ€¦
â€¦ All without a word mentioned about the dramatically superior and certainly safer refinance into a Home Equity Conversion Mortgage, or HECM reverse mortgage, through which he could have paid off his debt and put the money he needed into his pocket, but without the obvious burden that the traditional mortgage would remain for the rest of his life.
I donâ€™t know whether heâ€™ll lose his home to foreclosure in the future and I very much hope he doesnâ€™t, but that has nothing to do with the fact that many in his or similar situations will.Â And I can tell you that people just like him do end up in foreclosure every day somewhere in this country.Â I know, because Iâ€™ve heard from several like him every monthâ€¦ for the last five years.
Traditional mortgages were not meant for people in retirement, a time known for incomes that fall and expense that rise as we ageâ€¦ and both happen equally unexpectedly.Â Itâ€™s almost a guarantee, for example, that every 80 year oldsâ€™ income will fall in the years ahead,,, and itâ€™s almost an impossibility that it will rise.
And yetâ€¦ heâ€™s refinancing into a traditional mortgage, one offering the same strict terms for the next 30 yearsâ€¦ when he could refinance into a mortgage that would allow him to skip payments whenever he wanted toâ€¦ or needed to.
There arenâ€™t any downsides to this homeowner choosing the reverse mortgage over the otherâ€¦ nor are there any alternatives, as the media likes to claim there are.Â Every so-called alternative would require the borrower to adhere to a strict repayment schedule, and after 80 agreeing to such terms unnecessarily is nine times out of ten, a terrible idea.
The hypocrisy isnâ€™t hiddenâ€¦
Consider thisâ€¦ had that same 80 year-old known about and chosen to originate a HECM reverse mortgage, he would have been absolutely required to attend 60-90 minutes of counseling from a HUD counselor before he would have even been allowed to fill out an applicationâ€¦ so he can be told about alternatives to the reverse mortgageâ€¦. alternatives that arenâ€™t really alternatives, except in the broadest.
But he can call any mortgage lender or broker and without delay, he will be urged to apply for and receive a traditional 30-year mortgageâ€¦ and thereâ€™ll be no mandatory (or optional) counseling and no one will tell him about any alternatives, including the HECM reverse mortgageâ€¦ the alternative that would allow him to skip payments at any time, and that could end up saving his home from foreclosure.
Thatâ€™s just so incredibly wrong in so many ways, and yet thereâ€™s nobody saying a word about it.Â Neither the New York Times, Harvardâ€™s Joint Center for Housing Studies or the mortgage banker I spoke with, although they all recognized the inherent risk of older Americans an traditional mortgagesâ€¦ none even mentioned the HECM reverse mortgage in any contextâ€¦ only me.
When I think about how many homeowners or homebuyers are not told about the HECM reverse mortgage, it very near makes me want to scream.Â How can it be?Â If I were to downsize in retirement, buy a smaller homeâ€¦ and then find out that I could have used a HECM but no one told me about the alternative of the HECM for purchase program, I would be smoking mad.
And yet it continuesâ€¦ every day.