Bigger Mortgages Jeopardize Homeowners’ Retirement Years

Photo by Will Crocker/Getty Images

Just 10 years ago, Linda Byrne kissed her mortgage goodbye and celebrated her ownership of the four-bedroom house in which she’d raised a family.

Today, at 65, the retired registered nurse from Portland, Ore., struggles to pay $2,300 a month on a new mortgage, and a bank loan on a line of credit, which she took out to help family members in financial trouble.

“I’m just barely able to make ends meet,” says Byrne, who retired in December after severe osteoarthritis got the better of her. She collects a small pension and Social Security benefits.

“I’ve had to cut back on some of my medications,” she says as she comforts her 8-month-old granddaughter, who lives with her. “It’s very hard.”

More boomers and older adults are following in Byrne’s footsteps. Thanks to the housing bubble that catapulted home values around the nation, millions of people tapped into the equity in their homes to pay off debt, purchase goods and finance home renovations, or for other reasons. But what they’re left with, in some cases, is a mortgage that’s bigger than when they first purchased their home decades ago—and a retirement that is less than financially secure.

A study released in September by the Center for Retirement Research (CRR) at Boston College found that about 30 percent of homeowners ages 50 to 62 have cashed in on the equity in their homes, and they will likely remain saddled with mortgage debt and face a decline in net worth as they hit retirement.

The study, which examined the effects of the housing bubble on people’s retirement security, says the net worth of these homeowners who tapped into their home equity fell by 14 percent between 2001 and 2008 because of a decline in value and increased debt.

Alicia Munnell, director of the CRR, called the housing bubble “a real threat” to boomers at a time when they should be shoring up their nest eggs—just before retirement. “People’s mortgages are much bigger, compared to their income, than ever before,” Munnell says. “We’re going to have older people entering retirement with less in the way of net worth than they would’ve had in the absences of the boom and bust of the housing market.”

Len Raymond, founder and executive director of the Boston-based Homeowner Options for Massachusetts Elders, a nonprofit advocacy and counseling group, says he often meets with older people seeking financial assistance because their incomes can’t keep up with their living expenses.

“People are refinancing their mortgages in their mid-50s to early to mid-60s because they lose their jobs or because of the loss of a spouse, or [to cope with] runaway costs. When are they going to retire?” he asks.

“The old axiom—that later in life you retire and get the mortgage out of the way—we’re going in the opposite direction in the United States.”

An AARP analysis of housing debt among homeowners supports that point. More than two-thirds of homeowners (71 percent) who were between the ages of 50 and 64 had housing debt in 2004, up from 56 percent in 1989. Of homeowners ages 65 to 74, nearly 40 percent carried mortgage debt in 2004, up from 28 percent in 1989. And of homeowners age 75 and up, 22 percent carried mortgage debt, an increase of 13 percent.

The median mortgage debt has also jumped, according to a separate study by the nonprofit Employee Benefit Research Institute. Adults ages 55 to 64 with housing debt reported owing $83,000 in 2004, up from $39,500 in 1992. Among those 65 to 74, debt climbed from $22,400 to $51,000. Interestingly, adults 75 and up bucked that trend: Those with housing debt owed $30,000 in 2004, down from $36,900 in 1992.

Ida Cuprys is carrying a smaller mortgage than in her earlier years. Still, at age 88, Cuprys chuckles at the idea of paying on a 30-year mortgage for the two-bedroom condominium she bought 12 years ago just outside Chicago. As a daughter of the Great Depression, she was taught early on that older adults should pay off their mortgages before they headed into retirement.

“I didn’t think I’d have a mortgage at this age,” says Cuprys, a grandmother of four. “You just get in the habit of paying it.”

Although Cuprys has no trouble keeping up with her mortgage payments, Jack Williams, a bankruptcy professor at Georgia State University and the American Bankruptcy Institute’s resident scholar, says that people who carry housing debt into their retirement years often put themselves in financial peril.

“When you defer paying off your home, you still have a pretty hefty mortgage to pay. But you’re starting on the downside of the income-earning curve,” he says. “Oftentimes you have to pay that deep into your senior years.”

That’s what worries one Washington woman, now in her mid-60s. The woman, who asked that her name not be used, and her husband refinanced several years ago to do major home renovations. But now she wonders if the makeover was worth the housing debt they’ll shoulder for years.

“The thought of having a mortgage when I retire, and I’m not earning money, makes me sick,” she says. “My income won’t be able to cover the monthly payment. I’ll have to take money out of my savings. I don’t like to live that way.”

Carole Fleck is a senior editor on AARP Bulletin staff.