For seniors who have retired, taking on additional debt that requires a monthly payment while being on a fixed income could have ramifications on quality of retirement, and it should be considered in concert with all the facts about how it will impact a senior’s financial situation.
This is according to experts who spoke to personal finance website Bankrate about the concept of taking on a new mortgage in retirement. Certain things beyond current cash flow should also be taken into consideration, including data that suggests seniors face higher rejection rates on traditional mortgage applications, as well as alternative products such as reverse mortgages.
Age information is collected at the time of origination, but only for Home Mortgage Disclosure Act (HMDA) purposes. Seniors, even those of advanced age, are legally required to face the same qualification requirements as any other mortgage applicants.
“I once did a 30-year mortgage for a 97-year-old woman,” Michael Becker, branch manager at Sierra Pacific Mortgage in Lutherville, Maryland, told Bankrate. “She was lucid, understood what she was doing and just wanted to help out a family member [by taking] some cash out of her home, and had the income to qualify and the equity in the home — she owned it free and clear. So she was approved.”
An analyst for Bankrate describes some challenges that could be unique to older mortgage borrowers if they take on a new, debt-based financial instrument.
“Even if one owns a property with no further mortgage payments due, property taxes and upkeep will be a consideration,” Bankrate senior economic analyst Mark Hamrick said. “As with people of all ages, having a budget, limiting expenses and accurately accounting for income expectations are key.”
Using retirement savings to pay down mortgage debt could have a notable impact on a senior’s retirement resources, Bankrate noted, but there are options specifically designed for seniors seeking mortgage financing.
These include a reverse mortgage, which also requires the borrower to pay property taxes and insurance, but which — based on the home’s value, interest rates and other factors — offers payment options to the borrower instead of the other way around. Reverse mortgage industry advocates say that this helps insulate retirement resources from traditional mortgage payments.
Unlike a Home Equity Conversion Mortgage (HECM), forward mortgages were not designed with seniors in mind, according to Martin Andelman, reverse mortgage trainer and speaker with HighTechLending in Orange, California.
“It’s also worth mentioning that [in terms of] 30-year mortgages, I promise you, no one ever sat around and talked about 30-year mortgages thinking they’d be perfect for 70- and 80-year-olds,” Andelman said in a 2019 episode of The RMD Podcast.
“30-year mortgages were never meant to be for them. And now, I bump into people all the time who could be 72 years old, just refinanced two years ago, and now have only 28 years to go. What could go wrong?”