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What's With Seniors and Mortgages?
I know a lot of older people with mortgages. Aren’t seniors better off with no mortgage debt?
Retirement is generally seen as a time of life when folks have less income. For retirees, a mortgage-free home is clearly an advantage. However, with a changing economy – one that has not changed for the better for millions of people – the goal of a home free and clear of debt has become increasingly distant.
The numbers show that seniors 60 and older have significantly higher levels of mortgage debt than in the past. According to TransUnion, about 22 percent of all seniors had prime mortgage debt in 2005, a figure that rose to around 32 percent in 2014. That’s an enormous increase in a short period.
About 33 million people 65 and older own their own homes. However, according to the Consumer Financial Protection Bureau, 4.4 million continue to have mortgage debt. Some 2.4 million devote at least 30 percent of their income to monthly mortgage payments, according to the CFPB. The amount of senior mortgage debt has grown substantially, from roughly $43,400 in 2001 to $79,000 in 2011.
For many seniors, lingering mortgage debt is a byproduct of the financial meltdown. Those who are 65 today were in their mid-50s when the housing market collapsed. What were supposed to be prime earning years disappeared for millions of people. Wages declined and retirement savings produced virtually no returns as a result of the Federal Reserve’s zero interest rate policy.
Mortgages that might have been paid off in the normal course of events remained outstanding or were refinanced to access cash. To this day, corrected for inflation, home values remain substantially lower than they were in 2007.
Things could have been worse. Seniors could have rented instead of owned. According to Lawrence Yun, chief economist with the National Association of Realtors, a typical homeowner’s net worth in 2013 was $195,400 versus $5,400 for renters.
You might be surprised to learn that the idea of retirement is fairly new. According to the Social Security Administration, the modern concept of retirement at 65 arose when Germany became the first nation to adopt an old-age social insurance program in 1889 with backing from Germany’s Chancellor, Otto von Bismarck. The idea was first put forward, at Bismarck’s behest, in 1881 by Germany’s Emperor, William the First, in a ground-breaking letter to the German Parliament. William wrote: “Those who are disabled from work by age and invalidity have a well-grounded claim to care from the state.”
We’re now entering an era where people stay in the workforce longer, perhaps in part to pay off those pesky mortgage debts. According to the Census Bureau, more than 10 percent of those 70 and above now remain in the workforce.
When it comes to retirement, a 135-year-old experiment is now being challenged by new economic realities.
Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to firstname.lastname@example.org.View Foreclosure Article Archives
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