Photo: Robert Clark

Today more Baby Boomers in the US are heading into their retirement years with a mortgage looming over their heads than even just a few years ago during the recovery.

The “prevalence of household debt” among older homeowners is causing concern among analysts that fewer Baby Boomers will go into their retirement free-and-clear of their mortgage, according to a report released yesterday by Fannie Mae.

One factor that has probably contributed greatly to fewer Boomers owning their homes outright was high rates of home equity extraction during the housing boom of the early 2000s.

“Significantly greater cash-out refinance activity and home equity borrowing against rising home values during the boom likely pushed back the date of paying off the mortgage for some Boomer homeowners,” Patrick Simmons, Fannie Mae’s Economic & Strategic Research Group’s Director of Strategic Planning, tells BuzzBuzzNews.

Paying off a home’s mortgage was once a rite of passage for homeowners as they headed into their retirement years, but that is now becoming less common.

Baby Boomers achieved “free-and-clear homeownership” at an accelerated pace during the economic recovery — the years between 2010 and 2015 — compared to the years leading up to the housing bubble and the crisis that followed the burst.

The share of Baby Boomer homeowners who owned their homes outright increased by over 10 percentage points among Boomers who aged from 60-64 years old in 2010 to 65-69 years old in 2015, says Fannie Mae.

This was an increase of more than 2 percentage points than Boomers passing through the same age range between 2005 and 2010, the years of the Great Recession.

Several factors have may helped spur the post-crisis acceleration of free-and-clear homeownership among Baby Boomers.

“Some Boomers might have adopted a more conservative stance toward housing debt in the wake of the financial crisis and, simultaneously, tighter credit markets likely constrained the ability to borrow against the home,” says Simmons.

Also, many Baby Boomers may have been able to downsize into lower-valued homes without using mortgage financing as prices recovered and homeowners gained equity.

Lastly, some Boomer homeowners may have gained the financial means necessary to pay off their mortgages due to improvements in employment and income following the crisis.

Still, the future doesn’t look to be all sunshine and lollipops for Baby Boomer homeowners.

“Even with recently accelerated gains in free-and-clear homeownership, the oldest Baby Boomers have reached retirement age with a greater likelihood of carrying a mortgage, and younger Boomer cohorts are also expected to achieve relatively low rates of outright homeownership at retirement unless they accelerate even further the pace of extinguishing housing debt,” says Simmons.

Click here to read the entire report.

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