Published August 23, 2011
Ask Michael Becker, a mortgage banker at WCS Funding Group in Lutherville, Md., the age of his oldest-ever mortgage client, and he'll tell you: 97 years old.
"She was lucid, owned her house outright and had retirement income," Becker says. "She was helping out her son."
While 97 might seem old to be getting a mortgage, age is never a factor in a loan approval. In fact, it's illegal for lenders to discriminate against borrowers on that basis, Becker says. That's because age is a protected category within the Equal Credit Opportunity Act, a federal law that also bars credit discrimination based on a borrower's race, color, religion, national origin, sex, marital status or receipt of public assistance benefits.
Regardless of the borrower's age, sufficient income will be required to obtain a mortgage, Becker says. Some elderly people still earn paychecks or are self-employed. Others use nonemployment sources of income, such as Social Security benefits, a corporate, government or military pension, capital gains from investments, interest income or property rents, to qualify.
"If you're old and living on a fixed income, you may have trouble qualifying for a mortgage," Becker says. "But I've seen it happen."
Most older homeowners own their home free and clear and don't want a new mortgage, says Mark Given, a Realtor and seniors real estate specialist with Coldwell Banker Advantage in Littleton, N.C. But he adds that some older homebuyers are more receptive to financing today than they might have been in the past, in part because they're reluctant to part with cash reserves.
"Maybe they're getting a 15-year mortgage, anticipating they'll pay it off when they can," he says.
Still, a mortgage isn't necessarily a good idea for an elderly person since there are risks as well as benefits, according to Michael Halloran, a wealth management adviser at Estate Strategies Group in Jacksonville, Fla., and past president of the National Association of Estate Planners and Councils.
One risk is that seniors living on a fixed income might not be able to make monthly payments, even if they can meet the lender's guidelines.
"The main question is: Do they have the cash flow to pay for a mortgage?" Halloran says. "Let's see your budget."
Another concern, specific to married couples, is that the death of a spouse can cause a significant reduction in household income, making a payment unaffordable in the future.
"Some pension or retirement plans have settlement options that say while both husband and wife are alive, they get $1,000 a month and at the death of the first, the survivor will get (a percentage) of that amount," he says. "If one of them dies and the check gets cut by 25% or 30% or 50%, we have a problem."
Add inflation or an adjustable rate to the equation, and an income squeeze becomes an even greater risk. Rising property taxes, living costs or interest rates can make a mortgage quite uncomfortable for seniors who have fixed incomes or who want to protect their assets for their heirs.
"If five years down the road, the economy goes in the toilet and interest rates go bananas, then (a mortgage) that made sense at one time now doesn't make sense," Halloran says. "If a mortgage could erode their wealth because of a change in interest rates, I wouldn't advise it."
One more risk is fraud. Foreclosure rescue scams, inappropriate reverse mortgages and bogus home improvement refinancings generally grab the headlines, but any type of loan can expose an elderly person to financial abuse.
A recent MetLife Mature Market Institute study of media reports about elder financial abuse found that petty cons and purse snatchings were common crimes against elderly people. But there were also plenty of instances in which caregivers, handymen, friends, supposed sweethearts, adult children, lawyers and other trusted helpers "seized upon opportunities to forge checks, steal credit cards, pilfer bank accounts, transfer assets and generally decimate elders' financial safety nets."
Adults might wonder whether their elderly parents have a mortgage, especially one secured by a childhood home or house that's perceived as family property. But Given says older people typically don't share such information about their economic situation with their family.
"It's a generational thing," he says.
More often, sons and daughters discover these late-in-life mortgages only after parents die. At that time, Given says, a real estate agent can help them sort out how much the property is worth and how much is owed. Oftentimes, he adds, daughters and sons "don't have a clue."