When it came to housing, Susan Apel and Keith Irwin thought they had cleverly planned for their future lives. They bought a four-bedroom house on five acres in Lebanon, N.H., 24 years ago, and “we made sure we paid off the mortgage before we retired,” said Ms. Apel, 71.
That 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 to smaller, more manageable neighborhoods when they needed to.
That moment has arrived. Ms. Apel, a retired law professor, has difficulty climbing stairs. Mr. Irwin, 71, previously an account manager for a local company, is tired of yard work and snow shoveling, and finding workers to do those jobs instead has become difficult.
“We're seeing the writing on the wall,” Ms. Apel said. They started buying “a nice apartment with two bedrooms and a small study, all on one floor.”
But they can't find one. Local developers are building four-level homes with even more stairs. The few suitable single-storey homes available are quickly snapped up. City dwellers fleeing Covid have helped drive up home prices: One unit the couple saw recently cost $950,000 and needed work, Ms. Apel said. Even “small shoeboxes” 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 he wouldn't give us a chance to get out of it.”
Around 80% of seniors live in their own homes. But the traditional idea that a home with a paid-off mortgage can serve as an ATM to finance retired people's lives is changing, economists report. Homeownership is no longer an absolute benefit for some seniors.
“Are they aging in place or are they stuck in place?” asked Linna Zhu, a research economist at the Urban Institute. “Do we need to rethink the so-called American dream? It worked for previous generations, but does it still work today?
The percentage of seniors with mortgage debt has been increasing for decades. From 1989 to 2022, the percentage of homeowners ages 65 to 79 with mortgages rose to 41 percent from 24, according to the Harvard Joint Center for Housing Studies. The amount owed also rose from 21,000 to 110,000 dollars, adjusted for inflation.
David Turoff, 73, a veterinarian in Placerville, California, still has a $180,000 mortgage on his two-bedroom home, for example. He refinanced it to take out cash, a way to support his business after the 2008 recession. “I'm glad I did it,” he said, but “it was definitely a risk.” Even among homeowners aged over 80, 31% have a mortgage.
Rising mortgage balances and higher interest rates – along with higher property taxes, insurance and other costs – have contributed to making 43% of older homeowners with mortgages “cost-burdened,” defined such as those who spend 30% or more of their income on housing and related costs.
Of course, the average home equity has also increased, jumping by $80,000 in just three years, to reach $250,000 in 2022. That's largely why Boston College's Center for Retirement Research recently reduced its estimate of the percentage of American families at risk of not being able to live. maintain your standard of living after retirement.
The center's pension risk ratio fell to 39% in 2022 from 47% in 2019, a disturbing figure but the lowest since the center began tracking it 20 years ago.
The center bases its calculations on older homeowners leveraging 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 home in Boulder, in Colorado, with a line of credit of up to $382,000.
“The reason was to protect our pension funds for as long as possible,” said Windrum, 71, an author and speaker.
The line of credit allowed them to pay off their existing mortgage, afford cataract surgery and complicated dentistry (not covered by Medicare), replace a 22-year-old car, and upgrade the plumbing, all while keeping their savings intact pensions.
“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 the 2015 federal legislation strengthened government underwriting and consumer protections, “we felt comfortable and confident using the program,” he said.
Dr. Zhu agrees, calling a federal reverse mortgage “a very effective way to leverage home equity.”
But taking out a reverse mortgage or otherwise extracting home equity 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 real estate wealth represents “a nest egg, a cushion for later life.”
“But at the same time no one wants to touch it,” he added. “They want to leave it to their children. They want to save it for an emergency.”
Furthermore, access to real estate is not always simple or possible. With federally insured reverse mortgages — officially Home Equity Conversion Mortgages, or HECMs — the upfront costs are high (topping $17,000 for Mr. Windrum and Ms. Fink) and the paperwork is substantial. In 2022, only 64,500 older applicants received reverse mortgages through the federal program.
Other ways to access real estate capital have also become more difficult as ultra-low interest rates have returned to more typical levels. Cash-out refinancings by homeowners over age 65 fell to 600,000 in 2022 from 941,000 loans in 2021. “It's not as easy to get or as convenient as it was,” Dr. Molinsky said.
Older borrowers are denied refinancing loans more often than younger ones, in part because lenders consider income as well as assets, and income typically declines as workers retire. Home equity lines of credit, or HELOCs, are also more frequently denied to seniors and less attractive at higher interest rates. And maintenance costs increase over time as homes age along with their owners.
Furthermore, as Ms. Apel and Mr. Irwin found, the shortage of suitable, affordable homes for seniors makes downsizing difficult even for those with significant real estate wealth. “You can get stuck when you want to move forward,” Dr. Molinsky said.
Older Black and Hispanic homeowners are in particularly precarious positions because much of their wealth is tied up in their homes, said Anthony Webb, a senior fellow at the New School for Social Research.
“There is nothing wrong with having a mortgage on the liability side of the balance sheet, if it is accompanied by funds on the asset side,” such as retirement savings, investments and pensions, he said.
But minority homeowners have much less cash than white homeowners, in part because of lower lifetime earnings. “This is a story of growing inequality,” Dr. Webb said. Many black and Hispanic homeowners “have this asset,” he said, but “it will be difficult to maintain.”
Policymakers could increase seniors' options by improving and streamlining the federal HECM program, expanding criteria for refinancing and HELOC loans, and encouraging the development of more housing, including homes and apartments suited to older buyers and renters.
Experts agree that owning a home, a powerful generator of wealth, still makes sense overall. Even with mortgages, older homeowners have more protection against rising housing costs than renters and are less likely to be cost burdened. Home equity can also help finance long-term care.
But Ms. Apel and Mr. Irwin, as they continue their search, become frustrated. They don't want to leave the community where they have lived for decades, but they are ready to abandon their home.
“This would be a wonderful family home,” Ms. Apel said. “But we can't free him, because where would we go?”