Seniors Increasingly Faced With Big Mortgage Debts

According to a report released by The Real Deal, which is a real estate news publication, more than 32.7% of senior citizens are currently living with housing debt. This share of older Americans dealing with housing debt has more than doubled since 1995. Being stuck with mortgage debt puts a huge financial burden on seniors. Read on to learn about the causes of increased housing debt among seniors, what seniors can do if they can't make their mortgage payments and how the debt affects their and their children's lives.

What's Causing the Increase of Housing Debt Among Senior Citizens

Refinancing of mortgage loans is the leading cause of mortgage debt among senior citizens. According to an analysis released by the Harvard Joint Center for Housing Studies, researchers discovered that withdrawing equity and refinancing for an extended loan term was the leading cause of mortgage debt. The median amount of housing debt held by an individual senior citizen in the United States went from $27,090 in 1995 to $70,000 in 2016. The 2016 amount is after making adjustments for the rate of inflation.

About the Harvard Joint Center for Housing Studies Analysis

The Harvard Joint Center for Housing Studies studied data from the Survey of Consumer Finances. It looked at many factors that contributed to an increase in the household debt of senior citizens. Some of those factors were related to the participants' demographics, including wealth, income, race and the age at which they took their initial mortgage. The rate of home ownership, the number of years the homeowner had owned the property and the purchase price of the home were also factors. Some additional variables examined by the researchers included the term length of the loan, whether or not the homeowner had extracted any equity from their home and whether or not the homeowner had refinanced their mortgage.

Results from the Survey of Consumer Finances

The researchers at Harvard discovered that all of the demographic factors combined only accounted for about 25% of the growth in mortgage debt among seniors. The bigger contributors were those that tied debt to the number of years of home ownership. One of those variables was refinancing. Mortgage refinancing has increased by 400% over the past 20 years. The percentage of households owned by seniors that had refinanced their mortgages tripled from about 3.4% in 1995 to 10.7% in 1995.

Mortgage Term Plays an Increasingly Important Role in Lingering Debt

Another cause for the increase of housing debt among seniors is a longer mortgage term. The percentage of households owned by seniors that had a mortgage loan term of more than 30 years increased from 3.5% in 1995 to 13.5% in 2016. The study's lead author suggested that senior citizens are using the tools of refinancing and long-term mortgages as a way to improve their monthly cash flow and give themselves more budget wiggle room for monthly expenses and spending. The author also explained that the extended mortgage loan terms could also be an unplanned consequence of several years of low interest rates for mortgage loans. Rather than seeing a 15-year or 20-year mortgage as the default loan term, seniors are now viewing a 30-year mortgage loan as the standard.

The Tides Are Changing for Mortgage Refinancing

There may be a change in the tide of refinancing behavior among Americans as a whole for 2020. When the Mortgage Bankers Association took a look at data for August 2020, they found that the rate of refinancing for all Americans fell compared to the rate for July. However, this rate was still more than 40% higher than it was for August 2019. This shows that a lot of Americans are still taking advantage of the low interest rates to refinance their loans and secure lower monthly payments.

The COVID-19 Pandemic May Play a Role in Mortgage Debt

The ongoing COVID-19 pandemic could also play a role in mortgage debt. Seniors who had been part-time or full-time employed may have lost their jobs as a result of the shutdowns that occurred early in the pandemic. Seniors are less likely to be rehired after being laid off or furloughed. Employers tend to see them as a risk because of their age and health. Seniors who have lost their income may not be able to afford mortgage payments and may come to regret refinancing their homes that were previously nearly paid off.

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