When it came to housing, Susan Apel and Keith Irwin thought they had planned their future lives skillfully. They bought a four-bedroom house on two acres in Lebanon, N.H., 24 years ago, and “we made sure we paid off the mortgage before we retired,” Ms. Apel, 71, said.
This way, the home equity they had built up – they estimate their home is now worth about $700,000 – would allow them to sell and downsize their home into smaller, more manageable units when they would need it.
This moment has arrived. Ms. Apel, a retired law professor, has difficulty climbing stairs. Mr. Irwin, 71, a former accounts manager for a local company, is tired of yard work and shoveling snow, and finding workers to do those tasks instead has become difficult.
“We see what’s happening on the wall,” Ms. Apel said. They started looking for “a nice two-bedroom condo with a small living room, all on one floor.”
But they don’t find any. Local developers are building four-story townhouses with even more stairs. The few suitable one-story houses available are instantly snatched up. City dwellers fleeing Covid have helped drive up housing prices: One unit the couple viewed recently cost $950,000 and needed work, Ms. Apel reported. Even “small shoe boxes” sell for $600,000.
“We were very grateful to live in this lovely place and to have our house paid off,” Ms. Apel said. “It never occurred to us that this didn’t give us a way out.”
About 80 percent of older people live in a home they own. But the traditional idea that a home with a paid-off mortgage can serve as an ATM to help finance retirement living is changing, economists report. Home ownership is no longer an unconditional advantage for certain elderly people.
“Are they aging in place or are they stuck in place? asked Linna Zhu, a research economist at the Urban Institute. “Should we rethink this so-called American dream? It worked for previous generations, but does it still work today?
The proportion of seniors with mortgage debt are on the rise for decades. From 1989 to 2022, the share of homeowners ages 65 to 79 with a mortgage increased from 24 to 41 percent, according to the Harvard Joint Center for Housing Studies. The amount they owed also increased from $21,000 to $110,000, adjusted for inflation.
David Turoff, 73, a veterinarian in Placerville, Calif., still has a $180,000 mortgage on his two-bedroom house, for example. He refinanced it to remove cash, a way to maintain his practice after the 2008 recession. “I’m glad I did it,” he said, but “it was definitely a risk.” Even among homeowners in their 80s, 31% have a mortgage.
Larger mortgage balances and higher interest rates – as well as higher property taxes, insurance and other costs – have helped make 43 percent of older homeowners with mortgages are “burdened by costs””, defined as spending 30 percent or more of one’s income on housing and related costs.
Of course, median home equity has also been rising, jumping $80,000 in just three years, reaching $250,000 in 2022. That’s largely why the Center for Retirement Research at Boston College recently reduced its estimate of the proportion of American households at risk of not being able to maintain their standard of living after retirement.
The center retirement risk index fell to 39 percent in 2022 from 47 percent in 2019, a troubling figure but the lowest since the center began tracking it 20 years ago.
The center bases its calculations on the fact that older homeowners are tapping into their home equity with reverse mortgages, as Bart Windrum and Deborah Fink did in 2020. Through the Federal Housing Administration, they received a reverse mortgage on their townhouse in Boulder, Colorado, with a line of credit. up to $382,000.
“The reason was to protect our retirement funds as long as possible,” said Mr. Windrum, 71, an author and speaker.
The line of credit allowed them to pay off their existing mortgage, afford cataract surgery and complicated dental work (neither of which was covered by Medicare, in this case), replace a 22-year-old car, and to improve their plumbing, while maintaining their retirement savings. intact.
“When we sell this place, I anticipate that a third of its value, in round numbers, will go toward paying off the reverse mortgage,” Mr. Windrum said. Because federal legislation in 2015 strengthened government underwriting and consumer protections, “we felt comfortable and confident in using the program,” he said.
Dr. Zhu agreed, calling the federal reverse mortgage “a very effective way to tap into your home equity.”
But taking out a reverse mortgage or building equity in your home is something very few older homeowners actually do.
Jennifer Molinsky, who directs research on housing and aging at the Harvard Center, cites a “dual idea of homeownership,” in which the accumulation of housing wealth represents “a nest egg, a cushion for life later “.
“But at the same time, no one wants to touch it,” she added. “They want to leave it to…
