By Nancy Starczyk, President, Santa Clarita Valley Division of Southland Regional Association of Realtors®
Keeping retirement on track—or retiring at all—is much more difficult today for
home owners, especially as too few own their home outright and too many have
too much debt.
Compared to a decade ago, there are fewer older home owners who own their home
free and clear, with the share of owners over 65 with a mortgage increasing from 22
percent to 30 percent between 2001 and 2011.
Older home owners are also carrying more mortgage debt. Over the same time
span, the median amount of their mortgage debt grew from about $43,400 to
$79,000. That’s a nationwide median, but, just like California home prices are higher
than the rest of the nation, figure that California seniors owe much more.
For many of the roughly 4.4 million retired home owners with mortgages, making
monthly mortgage payments on a fixed income on top of other monthly expenses is a
hardship. Indeed, one-third of complaints to federal regulators by older Americans
focus on mortgages.
The most common types of mortgage complaints from older consumers, 46 percent,
are about issues they face when they are unable to make payments, such as issues
relating to loan modifications, collections, or foreclosures. Thirty-two percent of other
common types of mortgage complaints involve problems older consumers have
when making payments, such as issues with loan servicing, payments, and escrow
The federal Consumer Financial Protection Bureau offers the following tips on how to
keep a retirement plan on track:
• First, plan a mortgage pay-off date. For most older home owners, maintaining a
home is their largest expense during retirement, especially if they carry a mortgage.
Making a mortgage pay-off date a part of a retirement plan will help to manage and
afford housing costs.
For some, owning their home free and clear allows them to handle their monthly
expenses and have a reserve on hand in case a financial emergency arises. Aiming
for a mortgage payoff date that is earlier than the planned retirement age can help
manage expenses if income decreases unexpectedly. While carrying a mortgage in
retirement may not be a hardship for everyone, it’s always a good thing to include a
mortgage pay-off date.
Before paying off the mortgage, discuss any tax and estate implications with an
attorney, tax accountant or other financial professional.
• Second, be careful when getting a new mortgage, refinancing, or tapping into
home equity. Many consumers take on new loans or refinance their existing
mortgages to get a lower interest rate and/or monthly payment. Pay attention to the
term of a new mortgage as it can affect a retirement plan. For example, taking on a
new 30-year mortgage when nearing retirement can become a hardship later.
Consider choosing a shorter-term mortgage, such as 10 or 15 years, when
refinancing or buying a new home.
If considering a home equity loan or a reverse mortgage, first revisit the retirement
plan. Some people use their home equity to pay for varied expenses, such as home
improvements, consolidating debt, medical bills or college tuitions. Consider how
unanticipated expenses will be paid in the future if equity is drawn down now. Using
home equity to consolidate credit card or other debts can be risky. A home equity
lender can foreclose on your home if you miss payments.
• Third, estimate retirement income and expenses. Generally, people have less
income when they retire. Retirement income—from pensions, social security,
annuities, and other savings—typically won’t fully replace work earnings. One study
estimates that half of retirees without a pension will receive less than 65 percent of
their pre-retirement income.
Anticipating expected retirement income and expenses is important, especially if
retiring with a mortgage. Retirees will be able to plan and budget for mortgage
payments and other living costs, even if taxes, insurance, and other housing costs go
• Some expenses to keep in mind:
– Older consumers often must spend more for their health care and/or long-term
– Monthly mortgage payments on top of paying other monthly living expenses can
pose a hardship. In 2011, older homeowners with a mortgage spent $800 more per
month than their counterparts with no mortgage.
– If planning to age in a home, there may be a need to pay for home modifications.
Adapting a home to age in can cost thousands of dollars.
– Get help. If behind on a mortgage, or having a hard time making payments, contact
a local HUD-approved housing counselor.
Regardless, start making a plan. Calculate how much will be needed and how to
budget accordingly. That’s sound advice for any age.