Is it possible to pay off a mortgage before one retires? As older American homeowners grapple with this question, a Federal Reserve Survey of Consumer Finances revealed that 35 percent of households headed by homeowners in the 65 to 74 years age group have a mortgage.
The recent tax cuts won’t help much either, according to Liz Weston, a columnist for the personal finance website NerdWallet. “Congress’ Joint Committee on Taxation estimates 13.8 million households will benefit from the mortgage interest deduction this year, compared to more than 32 million last year,” she wrote in a recent article for the Washington Post. “Even before tax reform, people approaching retirement often got less benefit from their mortgages over time as payments switched from being mostly interest to being mostly principal.”
On the other hand, rising home equity among this age group is likely to get more homeowners looking at reverse mortgages to pay off debts. In fact, the latest National Reverse Mortgage Lenders Association (NRMLA)/RiskSpan Reverse Mortgage Market Index for the second quarter of 2018 revealed that housing wealth for homeowners 62 years and older grew to $6.9 trillion in Q2, an increase of $130 billion in senior home equity over the previous quarter.
"Today's retirees are more likely to leave the workforce with a mortgage and other debts that can put stress on monthly cash flow," said Peter Bell, President, and CEO of the National Reverse Mortgage Lenders Association (NRMLA).
Another reason is the fact that many older American homeowners are choosing to stay in their existing home rather than upgrading to a new home. According to a study by Zillow, 87 percent of people who are 55 years or older, and 91 percent of retirees, would renovate their homes instead of using the money for a down payment on a new one.
For retirees living on a fixed income, home equity, therefore, becomes their biggest asset and go-to resource for cash. "In these situations, financial products that convert home equity to cash could be used to pay off revolving debt from credit cards and reduce or defer monthly mortgage payments,” Bell said. It's worth doing the math to find out if a mortgage refinances, home equity line of credit or reverse mortgage loan can help increase financial security during retirement.”