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HomeHomes
Published: Thursday, 7/14/2005

Inside Mortgages with Jim DeBoth

Federal law states that a mortgage lender cannot care or even notice how old you are when you apply for a mortgage. But if your retirement age will be catching up with you long before the mortgage is paid for, you should care -- and plan accordingly. This is especially true when lenders are trying to talk you into taking out a new loan.

Of course, since today's baby boomers -- defined as those currently between ages 40 and 58 -- are redefining what it means to be retired as well as what it means to be a homeowner, a lot depends on what you plan to be doing when you hit your retirement age. Polls show that, compared to their parents, more of today's baby boomers plan to work at least part time when they retire. Yet they also are deeper in debt than their parents were at their age.

According to the Federal Reserve Board Survey of Consumers, 32 percent of households headed by someone between the ages of 65 and 74 were making mortgage payments in 2001-the most recent federal survey. That's up from 24 percent in 1995, and experts expect it to have risen even further by the time the Fed takes its next survey.

The Fed survey also shows that a typical homeowner between 65 and 74 still owed $44,000 on the mortgage in 2001. Back in 1989, that typical homeowner owed only $12,000. In addition, bankruptcies for seniors also have risen sharply, according to the AARP. In 1991, roughly 180,000 people aged 50-and-up filed for bankruptcy. In 2001, it was 450,000.

For decades, most homeowners hoped to have their mortgages paid off by the time they hit age 65. Today we have 65-year-olds refinancing or taking out second mortgages. This is not to say there is anything necessarily wrong with that. But the closer you are to retirement age, the more care you need to take when you sign a mortgage or any other long-term commitment, financial or otherwise.

It is also important to realize that mortgage lenders may come looking for you and try to talk you into borrowing. With house prices soaring in many hot real estate markets across the country, there is a deep and growing pool of untapped home equity, and many lenders are working hard to persuade homeowners to tap into it. According to an AARP survey, 49 percent of home refinance loans among older borrowers (those 65 or older) were lender-originated and 39 percent were broker-originated.

But just because you have the equity available doesn't mean it's necessarily a wise move to use it. If you are looking to refinance your house or take out a second mortgage, you definitely should consider your age and how it might affect your financial future, because lenders legally can't look at how old you are or base their decisions on your age. The onus definitely is on you to look far enough ahead to make wise home financing choices based on how you think your unique financial future is likely to unfold.

The same laws that prevent discrimination because of race, religion and sex, also cover age, explains Ken Preston, a spokesperson for Countrywide Home Loans in Los Angeles. Our lending programs look at people's abilities to make payments. We look at their credit history, their FICO scores, and their income. Age is not a factor. He points out that much of the work is done by computers today, and the age of the applicant isn't even part of the algorithm that the computers use to judge the credit-worthiness of an applicant. We evaluate people of all ages by the same criteria -- the same standards.

With your house serving as collateral for a loan, the lender is protected. The question is: Are you? As we get older, we can expect our needs and incomes to change. Pension plans, retirement accounts, savings, 401(k)s, IRAs and Social Security may become factors, as can part-time work.

Since we can't predict the future, we should plan using reasonable expectations of the future. So you must ask yourself how comfortable you are with the idea of having to make a monthly mortgage payment once you have retired. What other expenses -- both major and minor -- do you think you'll be carrying at the time? What sort of debts will you have? Do you think you'll still be able to work? What is your health like today and how much does your healthcare cost, including prescriptions? Do you have any indication of what it will be like in five, 10, or 20 years? What sort of income from any and all sources can you reasonably expect to have to pay for it all?

You also should ask yourself how important is it to you now to get the money. If you can get a low-interest mortgage loan by refinancing, taking out a second mortgage or opening a home equity line of credit, it definitely makes sense to use it to make a major purchase or pay off your debts, especially credit card debt that can have interest rates that top 20 percent. Not only will the interest be tax-deductible, but you'll also know exactly how large the monthly payments will be for as long as you keep the loan.

Which brings us to the final point: At what age will you stop feeling comfortable about keeping a loan and the monthly payments it requires? This is not just a question about money. Your health and your emotional wellbeing also factor into the decision.

While federal law says that lenders cannot consider your age when making their financial decisions, prudence and common sense say that you should. The federal government may say you are never too old to take out a mortgage, but you might well disagree.



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