When it comes to housing, Susan Apel and Keith Irwin thought they had planned skillfully for their later lives. They bought a four-bedroom house on two acres in Lebanon, NH, 24 years ago, and ”we made sure we paid off the mortgage before we retired,” Ms. Apel, 71, said.
That way, the equity they had built up—they estimate their home is now worth about $700,000—would allow them to sell and downsize in smaller, more manageable quarters when they needed to.
That time has come. Ms. Appel, a retired law professor, has trouble climbing stairs. Mr. Irwin, 71, formerly an account manager for a local business, has grown tired of yard work and snow shoveling, and finding workers to do those jobs has become difficult.
“We see the writing on the wall,” Ms Appel said. They started shopping for “a nice two-bedroom apartment with a little den, all on one floor.”
But they can’t find one. Local developers are building four-level townhouses with even more stairs. The few suitable single-storey houses available are being built immediately. City dwellers fleeing Covid have helped drive up housing prices: One unit the couple saw recently cost $950,000 and needed work, Ms. Apel said. Even “tiny shoe boxes” sell for $600,000.
“We were very grateful to live in this wonderful place and to pay off our house,” Ms. Appel said. “It never occurred to us that it didn’t enable us to get out of it.”
About 80 percent of seniors live in homes they own. But the traditional notion that a home with a paid-off mortgage can serve as an ATM to fund retirement is changing, economists say. Home ownership is no longer an unlimited benefit for some seniors.
“Are they aging in place or stuck in place?” asked Linna Zhu, a research economist at the Urban Institute. “Do we need to rethink this so-called American dream? It worked for previous generations, but does it still work today?’
The ratio of seniors with mortgage debt has increased for decades. From 1989 to 2022, the share of homeowners aged 65 to 79 with mortgages rose to 41 percent from 24, according to Harvard’s Joint Center for Housing Studies. The amount they owed also rose to $110,000 from $21,000, adjusted for inflation.
David Turoff, 73, a veterinarian in Placerville, Calif., still carries a $180,000 mortgage on his two-bedroom home, for example. He refinanced it to generate cash, a way to keep his practice afloat after the recession of 2008. “I’m glad I did it,” he said, but “it’s definitely a risk.” Even among homeowners in their 80s, 31 percent have mortgages.
Larger mortgage balances and higher interest rates—along with higher property taxes, insurance and other costs—have contributed to 43 percent of older homeowners with mortgages “cost burden,” defined as spending 30 percent or more of their income on housing and related expenses.
Of course, average home equity has also grown, jumping $80,000 in just three years to $250,000 in 2022. That’s largely why the Center for Retirement Research at Boston College recently lowered its estimate for the rate of American households at risk of not being able to maintain their standard of living after retirement.
Of the center pension risk index it fell to 39 percent in 2022 from 47 percent in 2019, an alarming rate but the lowest it has been since the center began tracking it 20 years ago.
The center bases its calculations on older homeowners leveraging their equity with reverse mortgages, as Bart Windrum and Deborah Fink did in 2020. Through the Federal Housing Administration, they obtained a reverse mortgage on their townhouse in Boulder, Colo. ., with a credit limit of up to $382,000.
“The reason was to protect our pension funds for 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 complex dentistry (not covered by Medicare), replace a 22-year-old car, and upgrade their plumbing while keeping their retirement savings.
“When we sell this place, I expect a third of its value, in round numbers, will go to pay off the reverse mortgage,” Mr. Windrom said. Because 2015 federal legislation brought stricter government underwriting and consumer protections, “we felt comfortable and confident using the program,” he said.
Dr. Zhou agreed, 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 the Housing and Aging Research Center at Harvard, cites a “dual concept of homeownership,” in which the accumulation of housing wealth represents “a nest egg, a cushion for later life.”
“But at the same time, nobody wants to touch it,” he added. “They want to leave it to their children. They want to save it for an emergency.”
After all, access to equity is not always simple or possible. With federally insured reverse mortgages — official Equity conversion mortgages, or HECM — the upfront costs are high (exceeding $17,000 for Mr. Windrum and Ms. Fink) and the paperwork significant. In 2022, only 64,500 older applicants received reverse home loans through the federal program.
Other ways to access home equity have also become more difficult as ultra-low interest rates have returned to more typical levels. Cash-out refinancing by homeowners over 65 is down to 600,000 in 2022 from 941,000 loans in 2021. “It’s not as easy to get or as affordable as it used to be,” Dr. Molinski said.
The oldest borrowers are refusal to refinance loans more often than younger people, 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 they are also more often denied to the elderly and less attractive with higher interest rates. And maintenance costs increase over time as homes age along with their owners.
Moreover, as Ms. Apel and Mr. Irwin discovered, the lack of suitable, affordable housing for seniors makes downsizing difficult even for those with significant housing wealth. “You can get locked in when you want to move forward,” Dr. Molinski said.
Older black and Hispanic homeowners are in a particularly vulnerable position because so much of their wealth is tied up in their homes, said Anthony Webb, a senior fellow at the New School for Social Research.
“There’s nothing wrong with having a mortgage on the liability side of the balance sheet if it’s matched with funds on the asset side,” such as retirement savings, investments and pensions, he said.
But minority homeowners have far less liquid assets than white homeowners, in part because of lower lifetime earnings. “This is a story of widening inequality,” Dr Webb said. Many black and Hispanic homeowners “have that advantage,” he said, but “it’s going to be a struggle to keep it.”
Policymakers could increase choices for seniors 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 suitable for older buyers and renters.
Experts agree that homeownership, a powerful driver of wealth, still makes sense overall. Even with mortgages, older homeowners have more protection from rising housing costs than renters and are less likely to incur costs. The same capital can also help finance long-term care.
But Ms. Apel and Mr. Irwin, as they continue their search, feel frustrated. They don’t want to leave the community where they have lived for decades, but they are ready to leave their home.
“This would make a wonderful family home,” Ms Appel said. “But we can’t free it, because where would we go?”