Do Your Parents Have a Mortgage?

by Kristina on May 18, 2011 · 7 comments

The days of couples retiring with a mortgage are a thing of the past.  Nowadays more and more of our parents are retiring with a mortgage on their home.  The days of getting a 30 year mortgage at the age of 25, and having it paid off by the time we retire at 55 is becoming less and less common.  The reason why our parents are so often retiring with a mortgage is because times change along with personal financial personalities, and individual financial habits.

The divorce rate is currently a lot higher now than it was years ago. Divorce is a more popular trend in this day and age, than it was when our parents were our age.  When people get divorced, one or both people in the couple need to move.  Sometimes they choose to rent, but sometimes they choose to buy another home.  This will create a new mortgage later on in their financial life.

My Dad and my (evil) step mother have a mortgage on their home; this is not because of my step mothers divorce, it is because of her bad financial habits.  In the last 9 years my step mother has changed financial institutions twice and paid a pre payment penalty on her mortgage, as well as refinanced three times to consolidate her debt, and pay off the debts of her 40 year old children.  This is an unfortunate financial habit because there is no equity left in their home.  Building equity is often the reason why people buy a home. When we buy a home we want to build equity and increase our profit upon the sale of our home.  No one wants to sell their home just to pay off their mortgage.

The only reason that I ever suggest for my clients to refinance their mortgage is to renovate or upgrade their home. Equity in our homes should only be used to finance improvements or repairs to our home.  It is also a good idea to refinance only when our mortgage is up for renewal, this avoids any additional pre payment penalties. The reason why the equity in our home should be used only to improve our home is because we will get our money back with the increase in the value of our home.

The equity in our home should not be used for the sole purpose of consolidating our consumer debts; even though the interest rates are lower on a mortgage than they are on our credit cards.  Paying off consumer debt does not increase the value of our home; it only creates a larger debt load.  A consolidation loan or a personal line of credit is a better option to help us pay off consumer debt.

It is ok to have a mortgage during retirement if our parent’s retirement income can support the mortgage payment.  Very often people plan for their retirement income to be 60% to 80% of their pre retirement income, depending on their retirement expenses.  Usually our retirement expenses are lower than our pre retirement expenses, but this is not always the case.

Photo by RKramer62

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{ 5 comments… read them below or add one }

1 Nicole May 18, 2011 at 11:35 am

I think the other big lesson here is not to take out a mortgage with a prepayment penalty. We made sure of that when we got ours.

2 Alotta Lettuce May 18, 2011 at 11:46 am

Ordinarily, I like your blog and I’m sorry if this comes across as rude, but sometimes I wonder where the hell you get your information. Do you actually do research? Or do you just randomly post anecdotal evidence and preconceived notions as fact?

The divorce rate is NOT higher now than it was when our parents were in their late 20s and 30s. In fact, the divorce rate has been declining steadily for 20 years, and is currently the LOWEST it’s been since 1970.

The reason so many people are retiring with mortgage debt is the result of the real-estate bubble and subsequent crash. During that time, people who were already well into their 40s or 50s upgraded to bigger, better and/or newer houses, riding the wave of ballooning equity, rather than staying put in the perfectly good homes they purchased in their 20s or 30s. If you take a 30 year mortgage when you’re 52, chances are that yeah, you’re going to retire with mortgage debt.

Likewise, a lot of people refinanced their homes in such a way that they pulled out a bunch of equity and are still paying it back, or in many cases, now owe more than their home is worth.

3 Kristina May 18, 2011 at 6:56 pm

@Alotta Lettuce

Your comment did not come across as rude at all, just as a concerned reader :-) My parents were born in 1953 and 1957, therefore they were in their 20’s and 30’s from 1973-1987. My statistics were from the Institute of Marriage and Family Canada website which quotes:

“Do 50 per cent of all marriages end in divorce? While divorce rates have increased greatly since the introduction of Divorce Laws in 1968, actual divorce rates have been decreasing in Canada since the 1990’s.” Therefore divorce rates have been declining since the 90’s, but before the 1990’s divorce rates were not decreasing.

Maybe I should have said that divorce is a more common notion now than it was back then. When I was young (born in 1980) divorce was not common, only 1 of my friends parents were divorced. Now I am 30 years old and only 1 of my parents friends are actually still married.

I hope this helps clarify my point.

4 Super Frugalette May 23, 2011 at 12:51 pm

No, my parents paid off their house years ago. Granted, they do not keep up with the Joneses…the wall paper was the same wall paper for nearly 30 years.

5 Brer Scientist May 25, 2011 at 5:25 pm

“The only reason that I ever suggest for my clients to refinance their mortgage is to renovate or upgrade their home.”

This makes sense if you mean refinance to take equity out. There are cases where it makes sense, especially when interest rates drop, to refinance without withdrawing equity. I just refinanced from a 30 year loan with 24 years left to a 15 year, resulting in a drop of just over 1% in the interest rate. The new payment is $300 more month, but saves 9 years of payments.

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