A new Freddie Mac study of older Americans over 55 finds that more than a third still have a mortgage—36 percent-, and a majority of those with a mortgage have more than ten years left until their loan is paid off.  In many ways , the Freddie Mac survey that was released last month, “Fun After Fifty”,  found that the plans and intentions today’s older generation differ significantly from those that have preceded it in ways that will greatly impact local housing markets.

It’s been well-documented by the Bipartisan Policy Center and the Havard Joint Center for Housing Studies that an extraordinarily large percentage of Boomers plan to stay put in homes they have owned for many years, plans that raise serious public policy questions about retrofitting costs they cannot afford  (see Boomers Creating Massive Boom in Retrofitting Homes and Boomers Would Rather Fix Up Than Move Out).  In the Freddie Mac study, almost a quarter of the respondents indicated they will need major renovations in order to stay in their current home for the rest of their lives (Exhibit 9). And other studies indicate the remainder of our respondents may be underestimating the need for retrofitting. 2

Now the Freddie Mac study provides at least part of the answer.  An extraordinarily large number of retirees and near-retirees haven’t paid off their mortgages.

Four of five non-retirees with a mortgage expects to pay their mortgage off before retirement, according to a new survey from Voya Financial.   The Voya study, released in April found that among non-retirees who had an outstanding balance, eight-in-ten (80%) planned to pay off their debt compared to roughly one-in-five (19%) who expected to carry it into retirement. Yet more than one-quarter (26%) of current retirees told us they still had an outstanding mortgage balance and one in six of them owing $50,000 or more.

 

 

Though most financial planners recommend paying off your mortgage is an essential step to downsize your living expenses as one prepares for retirement, some argue that paying off mortgages early doesn’t always make sense because:

• Benefitting from the mortgage interest deduction (a significant factor only for those who have recently refinanced);
• Investing in securities rather than pre-paying a mortgage to achieve a better rate of return (not always the case in these days of sensitive stock prices and appreciating home values).

More likely, Boomers who have not paid off their mortgages are victims of the Great Recession and the housing crash, a time when unemployment soared, income stagnated and housing values plummeted.  Indeed, according to the latest report fro Zillow,

While serious, the mortgage burden on retirees today may not be as bad as it was just a few years ago.  A 2012 study by the American Association of Retired Persons, based on 2010 data from the depths of the housing crash, found older Americans are carrying more mortgage debt than ever before.  The percentage of Americans of retirement age (65 to 74) who still owed on their mortgages increased 87 percent from 1989 t0 2010 reaching 40.5 percent of all seniors, according to the AARP research, called “Nightmare on Main Sreet.”

 

As of December 2011, approximately 3.5 million loans of people age 50+ were underwater—meaning homeowners owe more than their home is worth, so they have no equity; 600,000 loans of people age 50+ were in foreclosure, and another 625,000 loans were 90 or more days delinquent. From 2007 to 2011, more than 1.5 million older Americans lost their homes as a result of the mortgage crisis.

Only four points separate the AARP study, which was based on the Federal Reserve’s Survey of Consumer Finances, and the Freddie Mac survey, nearly enough to be statistically insignificant.  Will rising prices continue to create the equity retirees can use to pay down their mortgages, or will a third of the Boomer generation be forced to work into the 70s to meet their monthly mortgage payments?