More Baby Boomers Will Enter Retirement with Mortgages, Fannie Mae Finds

More baby boomers who have yet to retire will enter their golden years with outstanding mortgage debt than previous generations, according to a recent study from Fannie Mae.

In 2015, fewer than half of all owner-occupants aged 65 to 69 owned their homes free and clear; back in 2000, about 60% of Americans that age had no mortgage.

Those numbers stand in contrast to Fannie Mae’s findings that baby boomers accelerated the process of owning their homes outright during the post-recession years, as the economy recovered and more older homeowners were able to retire their outstanding mortgage debts. For instance, folks aged 60 to 64 in 2010 saw a boost in free-and-clear homeownership of 10.6 percentage points by the time they turned 65 to 69 five years later.

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That’s about 2 points faster than people who went through that age transition during the depths of the housing crisis between 2005 and 2010.

Still, Fannie Mae noted that changing perceptions of home debt — generally considered to be a positive for reverse mortgage lenders accustomed to the anti-mortgage sentiment of older retirees from the “greatest generation” — could have negative implications for retirees moving forward.

“Paying off the mortgage, once a widespread rite of passage for homeowners approaching retirement, has become less common in recent years,” wrote Patrick Simmons, director of strategic planning for Fannie Mae’s Economic & Strategic Research Group.  

“Concerns are mounting that the increased prevalence of housing debt among older homeowners could compromise financial security in retirement by expanding housing affordability problems, crimping essential non-housing spending, increasing vulnerability to home loss through foreclosure, or limiting the accumulation of housing wealth,” Simmons continued.

Furthermore, Fannie Mae projected that baby boomers who have yet to retire won’t match the high water mark of free-and-clear homeownership set by Americans born between 1931 and 1935, who reached the ages of 65 to 69 in 2000. While 59.8% of those Americans had no mortgages by that age, only 54.8% of those born between 1956 and 1960 will be free of a mortgage burden when they turn 65 to 69 in 2025.

“The relatively high incidence of housing debt among boomer homeowners has the potential to strain their retirement finances,” Simmons wrote. “Given that income typically declines in retirement, monthly mortgage payments could stretch the household budgets of boomers who exit the labor force without first extinguishing their housing debts.”

Simmons and Fannie Mae speculated that the trends could increase the need for education surrounding debt refinancing and downsizing.

“Educating younger boomers about options for shorter-duration mortgages that accelerate principal pay-down might increase the likelihood that they enter retirement with little or no housing debt,” he wrote. “For older boomer mortgagors who wish to eliminate housing debt, an option worth considering is trading down to less expensive homes.”

Written by Alex Spanko

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  • While this being the case, we have to look at how much debt seniors actually have on their homes.

    If we look hard enough, we may find that, yes, debt has risen among many new baby boomers on their homes on those of the past. However, we may also find that the loan to value (LTV) ratio’s, for the most part, are relatively low.

    In this case, we should find ourselves faced with a great opportunity to utilize our HECM to pay off the debt, use it as a retirement planning tool to increase our potential senior clients retirement income!

    John A. Smaldone
    http://www.hanover-financial.com

    • John,

      Like you, I do not see this as a greatly increased barrier to seniors getting HECMs. In fact, it may cause more to see the need to decrease cash outflow through refinancing into a HECM.

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