“Dreams are renewable. No matter what our age or condition, there are still untapped possibilities within us and new beauty waiting to be born.” – Dale E. Turner
In 1975, All in the Family had an episode that centered around Archie and Edith Bunker throwing a mortgage burning party. Has anyone ever been to one of these? Not lately, reports the LA Times.
Jonathan Peterson writes, “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.”
“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.”
The baby boomers are aging with debt. The generation before them usually had their house paid off or at least paid down which is why reverse mortgages picked up steam over the last few years of high appreciation.
Yahoo Finance defines it, “A reverse mortgage is a loan to an elderly homeowner on which the borrower’s debt rises over time, but which need not be repaid until the borrower dies, sells the house, or moves out permanently.”
“The ‘forward’ mortgages that are used to purchase homes build equity – the value of the home less the mortgage balance. Borrowers pay down the balance over time, and by age 62, when they become eligible for a reverse mortgage, loan balances are either paid off or much reduced.”
This luxury will likely not be available to the boomers since many we learned will never pay off or pay down a significant part of the principal. Peterson reported a few weeks ago that, “Many Americans are stumbling toward retirement with big misconceptions about how to prepare financially for old age and with inadequate savings for a time of intensified economic pressures on the elderly.”
“Among those aged 55 to 64, half owed money on their homes in 2004, up from 37% in 1989. A growing share of the debt is in the form of adjustable-rate mortgages that are poised to rise along with interest rates and potentially could soar, making payments much more burdensome. For borrowers in the decade before the traditional retirement age of 65, such adjustable debt jumped from 16% in 2001 to 21% in 2004, according to figures compiled by Boston College.”
“Health issues and workplace layoffs often derail the careers of older workers, research has shown. In a growing number of cases, these people are facing a payment that could increase significantly.”
So what’s the answer… pay off the mortgage? Yes, but easier said than done for most people. Perhaps somebody needs to bring the mortgage-burning party back in vogue for Boomers and Generation X. Until then, living debt-free will just be a blip in our memory like an “All in the Family” rerun.