Reverse mortgage professionals have long grappled with homeowners’ later-in-life resistance to assuming more debt. After all, many homeowners aged 62 or older have spent a good chunk of their adult lives attempting to rid themselves of the purchase mortgage that allowed them to buy their family homesteads.
But those attitudes are changing, and the New York Times on Sunday explored the new, innovative ways older Americans are using credit to buy houses — and how they’re using the cash they save to fund home repairs, pay down debts, and cover other costs.
The common trajectory for homeowners went something like this: Make a modest down payment, pay down your mortgage over the course of 30 years, throw a party when you finally owned the house free and clear, and never go back into mortgage debt. While that attitude remains entrenched in some older potential Home Equity Conversion Mortgage borrowers — as reverse mortgage professional Mike Gruley told RMD a few months ago — the stigma against mortgages in one’s retirement has gradually lifted.
Back in 1992, the Times points out, just 18.5% of households headed by people aged 65 to 74 had any kind of home-related debt, according to the Federal Reserve. That number steadily rose to 32% by 2004 and 42% in 2013, with the Times estimating further future growth as the baby boom generation continues to age.
To get a fix on the motives of today’s older mortgage borrower, the paper spoke with a variety of buyers, including a couple from Connecticut who used a 30-year mortgage to purchase a condo — despite being in their early 70s.
“We could have paid cash for the place, but our financial adviser suggested that we get a mortgage so we can get a tax deduction, and our money keeps working for us,” buyer Chuck Queener told the Times.
The Hunts, also in their early 70s and retired, used a 30-year fixed mortgage to purchase a homestead in their native Kansas, where they plan to spend the remainder of their retirement. While they could have paid cash, they decided to put just 20% down and use the proceeds from the sale of their previous home in California to pay other debts and spruce up their new digs.
Despite the coverage of seniors’ willingness to assume mortgage debt, the piece only mentions reverse mortgages in passing — specifically, the HECM for Purchase product, which the Times says could help retirees buy second homes. But perhaps HECM lenders and originators could find promise in the secondary thesis of the Times piece: Getting a traditional “forward” mortgage is harder than it ever was in the wake of the Great Recession and the Dodd-Frank financial reforms, even for younger people with steady income streams.
Queener, for instance, told the Times that banks today look “at every penny you got coming in.”
“It was a strenuous process,” he told the paper. “Every time we turned around, there was more paperwork to fill out.”
The Times also spoke with Greg McBride, chief financial analyst at Bankrate, who advocated for mortgages as a way for older people to remain in the credit landscape — but, in doing so, identified the problems that many might encounter when attempting to take one out.
“Poor credit, no credit, or lack of verifiable income — all a big problem,” McBride told the Times.
Written by Alex Spanko