When it came to housing, Susan Appel and Keith Irwin thought they were properly planning for later life. They bought a four-bedroom house on two acres in Lebanon, N.H., 24 years ago, and “we made sure to pay off the mortgage before we retired,” said Appel, 71.
That way, they can take advantage of the home equity they've built up (they estimate their home is now worth about $700,000) and sell it when they need to for a smaller, more manageable lot. Can be reduced.
The time has come. Mr. Appel, a retired law professor, has trouble climbing stairs. Mr. Irwin, 71, who previously worked as an account manager for a local company, is tired of gardening and shoveling snow and is having trouble finding workers to do those chores for him.
“I see the writing on the wall,” Appel said. They started looking for “a nice two-bedroom condo with a small den on one floor.”
But they can't find it. Local developers are also building four-story townhouses with more stairs. A small number of suitable one-floor homes are readily available. Appel reports that urban residents fleeing the coronavirus have contributed to soaring housing prices. The couple recently viewed a home that cost $950,000 and needed work. Even a “small shoebox” sells for $600,000.
“I'm so grateful to be able to live in this wonderful place and be able to pay off my house,” Appel said. “It never occurred to us that it wouldn't give us the ability to get out of that situation.”
Approximately 80% of older adults live in their own homes. But the traditional idea that a home with a paid-off mortgage acts as an ATM to finance retirement is changing, economists report. For some seniors, homeownership is no longer a disqualifying benefit.
“Are they aging in place or stuck in place?” asked Linna Zhu, a research economist at the Urban Research Institute. “Do we need to rethink this so-called American Dream? It worked in previous generations, will it still work today?”
The proportion of older adults with a mortgage has increased in recent decades. From 1989 to 2022, the percentage of homeowners ages 65 to 79 with a mortgage rose from 24% to 41%, according to the Harvard University Joint Center for Housing Research. Their debt also increased from $21,000 to $110,000, adjusted for inflation.
For example, David Turov, 73, a veterinarian in Placerville, Calif., still has a $180,000 mortgage on his two-bedroom home. He refinanced it to raise cash and keep his operations afloat after the 2008 recession. “I'm glad I did it,” he says, but “it was definitely a risk.” Even among homeowners in their 80s, 31% still have a mortgage.
Forty-three percent of older homeowners with mortgages are “cost-burdened,” due to rising mortgage balances and rising interest rates, property taxes, insurance, and other costs. “Cost burdened” is defined as spending more than 30 percent of her income on housing and related expenses.
Of course, median home equity also rose, rising by $80,000 in just three years to reach $250,000 in 2022. This is a key reason why the Boston University Retirement Research Center recently lowered its estimate of the percentage of American households at risk of being unable to make ends meet. Maintain your standard of living after retirement.
The center's Retirement Risk Index fell from 47% in 2019 to 39% in 2022, an alarming number but the lowest since the center began tracking it 20 years ago.
The center bases its calculations on older homeowners leveraging their home equity with reverse mortgages, as Bart Windrum and Deborah Fink did in 2020. They received a reverse mortgage with a line of credit on a townhouse in Boulder, Colorado, through the Federal Housing Administration. Up to $382,000.
“The reason was to protect our retirement funds as long as possible,” said Mr. Windrum, 71, an author and speaker.
Thanks to this line of credit, they were able to keep their retirement savings intact while paying off their existing mortgage, paying for cataract surgery and complex dental work (both not covered by Medicare), and spending 22 years ago. I was able to replace my car and upgrade my plumbing.
“When we sell this place, we estimate that roughly one-third of its value will be used to pay off the reverse mortgage,” Windrum said. “We felt comfortable and confident in using this program,” he said, because a 2015 federal law strengthened government underwriting and consumer protections.
Dr. Zhu agreed, calling federal reverse mortgages “a very effective way to leverage home equity.”
However, taking out a reverse mortgage or otherwise withdrawing home equity is something older homeowners rarely do.
Jennifer Molinsky, who directs research on housing and aging at the Harvard University Center on Housing and Aging, argues that there is a “duplicitous view of homeownership” in which the accumulation of residential wealth means “a nest egg, a cushion for later life.” ”.
“But at the same time, no one wants to touch it,” she added. “They want to leave it to their children. They want to save it for emergencies.”
Additionally, accessing home equity is not always easy or possible. Federally backed reverse mortgages, formally known as Home Equity Conversion Mortgages (HECMs), have high upfront costs (more than $17,000 in Windrum and Fink's case) and a lot of paperwork. In 2022, only 64,500 elderly applicants received reverse mortgages through the federal program.
Other ways to access home equity have also become more difficult as extremely low interest rates have returned to more common levels. Cash-out refinances by homeowners 65 and older fell from 941,000 in 2021 to 600,000 in 2022. “It's not as easy to borrow as it used to be, and it's not as cost-effective,” Dr. Molinsky said.
Older borrowers are more often denied refinancing than younger ones, in part because lenders consider income as well as assets, and income typically declines when workers retire. ing. Home equity lines of credit (HELOCs) are also often rejected by seniors, and higher interest rates make them less attractive. And as homes age with their owners, maintenance costs increase over time.
Additionally, as Appel and Irwin discovered, the lack of adequate, affordable housing for seniors makes downsizing difficult even for those with significant home equity. “Even when you want to move forward, you can feel trapped,” says Dr. Molinsky.
Anthony Webb, a senior fellow at the New School for Social Research, said older black and Hispanic homeowners are in a particularly precarious position because much of their wealth is locked up in their homes. Ta.
He said, “There is nothing wrong with having a mortgage on the liability side of the balance sheet as long as it matches the funds on the asset side, such as retirement savings, investments, and pensions.''
However, due in part to lower lifetime incomes, minority homeowners have far fewer liquid assets than white homeowners. “This is a story of growing inequality,” Dr. Webb said. Many black and Hispanic homeowners “have this equity,” he said, but “they're going to have a hard time maintaining it.”
Policymakers can improve and streamline the federal HECM program, expand standards for refinancing and HELOC loans, and encourage the development of more housing, including homes and apartments suitable for older buyers and tenants. , could increase options for seniors.
Experts agree that homeownership, as a potential wealth generator, still makes sense overall. Even with a mortgage, older homeowners have greater protection from rising housing costs than renters and may be able to afford less. Home equity can also help fund long-term care.
But Appel and Irwin are feeling frustrated as they continue their search. They don't want to leave the communities they've lived in for decades, but they're ready to give up their homes.
“This is going to be a great family home,” Appel said. “But we can't free it. Where will it go?”