Smart About Money: A 30-Year Mortgage at Age 81By Nick Maffeo
An 81-year-old man recently came in to talk about taking out a 30-year mortgage on his house in Canton. Given his age, you might be thinking, “What?”
But times change. Financial tools change. And the way people can make use of those tools changes too.
Some background: Up until about 1985, a homeowner might have gotten a first mortgage and, if they needed more money, they might get what was then called a “second mortgage.” Taking out a second mortgage was pretty much frowned upon by borrowers and bankers alike. The borrower had to be pretty desperate.
Then some wise person renamed those second mortgages, calling them what they really are. Homeowners wanted to borrow against their own home equity. The “second mortgage” became the “home equity loan,” and one of the most popular and useful products in banking history was born.
What does that have to do with people over 80 taking out 30-year mortgages?
People are living longer — much, much longer. And while many have more assets, more income and more money than they expected, sometimes it’s not easy to turn those assets into enough ready cash to live on comfortably. Many seniors are asset rich and cash poor.
The gentleman I spoke with was very frank. He told me that he assumed he would be dead by 81. As it so happens, he’s going strong, and with a little luck he’ll live to be 100. He has cash flow, but not enough to last the next 19 years, unless he sells his paid-for house, which he is not ready to do.
Reverse mortgages are endlessly touted on TV as a way for seniors to get the money they need from the equity in their homes — and that may be the right solution for some situations.
What we’re seeing, though, is that for many seniors, a classic “plain vanilla” 30-year mortgage or home equity line/loan works better for them financially. Both conventional mortgages and home equity lines/loans are more straightforward than reverse mortgages — they’re less complicated with lower fees.
Not so long ago, it would have been unthinkable for a 60 or 70 year old to take out a 30-year mortgage. How would they ever have time to pay it off? Now they take mortgages out all the time, and we understand that the eventual sale of the home is what pays off these people’s loans.
It’s the same for people 80+ who have some cash flow plus other illiquid assets they can’t easily tap or draw down without various consequences, including tax consequences.
It sounds ironic, but it’s true: Taking on the “burden” of a 30-year mortgage can actually lift many other burdens off these seniors’ minds.
As I said, it’s not right for everyone. But if you wonder if it might be right for you or someone in your family, talk to your banker and other financial advisors. This is a brand-new way to use old, trusted tools, and it’s worth finding out if it would work for your situation.
Nick Maffeo is the senior vice president, chief financial officer and treasurer at the Canton Co-operative Bank in Canton. Have a question? Email to email@example.com.
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