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Fewer Elderly Paying Off Mortgages

One in a series of occasional stories on retirement at risk

July 22, 2006|Jonathan Peterson | Times Staff Writer

WASHINGTON -- Ask Norm Edelen how old he'll be when his last mortgage payment is due, and he doesn't miss a beat. The answer: 100.

Not that he's troubled by the likelihood that his housing debt will last longer than he will: "It doesn't bother me at all," the 74-year-old San Bernardino resident said. "It's not something I ever thought I would live to complete."

Welcome to a new era in home borrowing, where long-term mortgages and home equity loans are taking their place alongside AARP cards and pension checks as never before. About 25% of all Americans over age 65 have yet to pay off their home loans, up from 11% in 1983, according to a Boston College analysis of Federal Reserve Board data.

For many older homeowners, such as Edelen, the decision to carry housing debt deeper into their twilight years is by choice. They see their homes -- rather than savings accounts -- as piggy banks that can be tapped through home equity loans or refinancings to provide ready cash.

But the trend also reflects sober realities, including lifestyle changes from an earlier, more debt-averse era.

People who marry or remarry in middle age often find themselves making down payments on a home at a stage in life when their own parents had already paid off the mortgage. Others are able to pay off their mortgages, but opt to refinance to help make ends meet in retirement -- pushing their debt deep into old age.

A sure-bet housing market has limited the downside risk. Soaring home prices have boosted the equity people have in their homes, and low interest rates have often allowed them to tap this equity without raising their monthly payments.

"As long as you can still find a job at an older age, as long as the housing market remains strong, it's not a terrible thing," said Zhu Xiao Di, a senior research analyst at Harvard University's Joint Center for Housing Studies. "But if bad things happen [economically], it could be a problem."

He added: "Whether this is alarming -- or people are just smarter than we thought -- I don't know."

If home values plunge or interest rates soar, for example, many homeowners could be faced with a squeeze. They would find it difficult to unload the property and shift into something smaller and cheaper, as older homeowners often seek to do. Older workers could be forced to delay retirement, if they are able.

In such a worst-case scenario, bankruptcies and foreclosures would rise, and some experts even fear that cutbacks in spending by older consumers could take a toll on the U.S. economy.

"You could begin to have a downturn," said Dimitri B. Papadimitriou, president of the Levy Economics Institute of Bard College in New York, who fears that older people could suffer particularly in such an episode. "I don't have a lot of optimism down the line."

For people nearing retirement, paying off the loan was once viewed as a rite of passage that freed up cash each month and strengthened a household's ability to handle the unpredictable costs of old age, such as for healthcare.

But increasingly, it is a milestone that people do not expect to reach. A new AARP national survey, for example, found that among workers 55 and older with mortgages, about half doubted that they could pay them off before they retired.

Christopher Cruise, a former mortgage broker who now trains people who write home loans, recalled the fading tradition of the "mortgage-burning" party, in which newly debt-free homeowners invited their friends over and ignited the old mortgage in a joyous blaze of freedom. Younger loan agents often have never heard of the tradition, he said.

"One hundred percent of the people I teach in their late 20s or 30s have no idea what a mortgage burning is," Cruise said. "This whole attitude of paying off the mortgage and owning the home free and clear is disappearing from the country."

Norm Edelen recalled the disruption in his own life that put him in the housing market around his 70th birthday -- and the very good outcome that has resulted from his investment.

Edelen, a former television writer and Los Angeles police officer, had decided "to get out of the rat race" and moved with his wife to her home island of St. Thomas, where they built a property management business. But a series of hurricanes pounded the island economy, and they returned to Southern California in the late 1990s.

At first, Edelen tried to reconnect with television, but the response was negative. "That's pretty much a who-you-know business, and most of the people I knew were either dead or retired."

Retirement was not an option, however. The Edelens had a young son, and their savings and pension income were not enough to ensure the sort of future they yearned for. To build wealth for his family's long-term security, Edelen wanted a piece of Southern California real estate, however modest.

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