A growing number of U.S. homeowners reach retirement still owing money on their houses. The share of Americans 65 and older with mortgage debt rose to 30 percent in 2011, from 22 percent in 2001, according to a May analysis by the Consumer Financial Protection Bureau (CFPB). Loan balances also increased, with the median amount owed almost doubling, to $79,000 from $43,400, after adjusting for inflation.
The increase in mortgage debt may be keeping older Americans from retiring and crimping their spending on things such as vacations and visits to grandchildren. In the long term, it may make them more vulnerable to swings in the economy. “Hit with a financial downturn or an unexpected cost, they often are in a position where they don’t have the ability to recoup whatever losses they may have suffered,” says Stacy Canan, deputy assistant director at the CFPB’s Office for Older Americans in Washington.
The refinancing boom of the early 2000s—and to some extent a more recent wave in the post-recession years—is one reason mortgage debt grew, according to a 2012 analysis led by John Gist, a research professor at George Washington University’s Institute of Public Policy in Washington. The opportunity to make smaller down payments during the housing boom and the acquisition of vacation homes also contributed to the amount of mortgage debt.
Older Americans with housing debt have the highest rates of refinancing, with more than half of those born from 1946 to 1964 going through the process in 2004 and 2007, Gist found. They also tapped their home equity more often than younger generations, he says.
Leo Zawacky, 66, and his wife took out a 30-year mortgage in 2003 to buy a duplex a mile from the ocean in Atlantic Beach, Fla. They added a home-equity loan a few years later. Those debts became harder to service when Zawacky lost his job as a carpenter in the housing crisis and was forced into retirement. “It is stressful to have that hanging on us, but we try very hard not to let it bother us,” says Zawacky, who makes crafts with his wife to sell at local arts shows to supplement their income. Still, he says, “we can’t do a lot of things we’d like to do.”
About 65 percent of homeowners with mortgages are still working at age 64, compared with 54 percent of those without housing debt, according to a December analysis by Washington-based Urban Institute researchers Barbara Butrica and Nadia Karamcheva.
The trend toward having a bigger mortgage later in life is probably here to stay, especially with millennials waiting longer to buy a home, says Sam Khater, deputy chief economist at mortgage and real estate information provider CoreLogic. The homeownership rate for Americans 35 and younger fell to 35.9 percent in the second quarter, the lowest level in quarterly data going back to 1994, according to the U.S. Census Bureau. That compares with a high of 43.6 percent a decade ago.
“A lot of today’s millennials are entering the market quite a bit later than their parents, so just by definition they’re going to be carrying more debt later in life,” Khater says. In the past borrowers looked forward to burning their note. “Over the next couple decades, that’s going to happen in much smaller percentages,” he says.