Should you pay a mortgage until age 90? - Skip to content

Should you pay a mortgage until age 90?

helping the overlooked majority of retirees

Is there any advantage in making perpetual mortgage payments?

Dear MarketWatch, I’m 66 and have a mortgage with $47,000 left on it. My interest rate is 3%, and it’s a 30-year fixed-rate mortgage. I pay $136 a month. I’m 66 and have a mortgage with $47,000 left on it. My interest rate is 3%, and it’s a 30-year fixed-rate mortgage. I pay $136 a month. My mortgage was due to be paid off in 2027. But my old lender decided to sell my loan to another, and now it looks like my mortgage will only be paid off when I’m 90 years old.”, signed No Luck.

While the new payoff date seems odd the question itself is not.

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  1. Obviously costs are relative in the absence of value…..So that should always be the goal of anyone who is trying to effectively communicate the benefits if they outweigh the costs. With the HECM there are intangible opportunity costs and of course the “assurances of insurances” the product provides ie ability to live in the home over ones life, etc…… The SAVER should be brought back as it was a low cost option with less money but could have opened the door to much more opportunity and allowed the HECM to gain considerably more traction

    • While I agree with your view of the HECM Saver, what assurance does HUD provide the BORROWER? The answer is NONE.

      The LENDER is insured for any loss on the difference between the amount due on the note and the proceeds received by the lender in termination. Once the HECM UPB hits 98% of the MCA, the lender must assign the HECM to HUD or take over the risk of loss at termination.

      Some claim that HUD insures the line of credit. Yet when one servicer would not increase the line of credit for prepayments made, HUD did not step in and do anything about it.

      It is a myth that borrowers directly purchase insurance from FHA when they get a HECM. The fact is that the MIP paid from loan proceeds does nothing more than pay for the FHA premium costs of the lender/servicer in providing the HECM to the HECM borrower. Since saying that the 2% upfront MIP and the 0.5% ongoing MIP must be reimbursed to the lender does not sound all that great in the ears of the HECM borrower, the statement is made that those loan accruals are for the cost of FHA insurance. What is always left out is that the payment of the MIP is the responsibility of the lender and as with any mortgage, the lender has the right to be reimbursed for all costs incurred in creating a mortgage.

  2. Great episode. Why have a mortgage payment into your 90s on a fixed income? The costs are paper money. Florida does have to lower their costs. I am working in Florida right now.

    • The costs are “paper money.” That is a very strange statement.

      What you fail to convey is that the cost of a HECM are deferred but increase due to interest and MIP accruals. Perhaps that is nothing but paper money to you but to the person(s) who owns the equity in the home at HECM termination, those costs are very real.

      Neither Florida nor FHA have to lower any costs. That is in your imagination and that of the senior who wrote in to the advisor. These are costs that others control.

  3. Without knowing his home value, a $47k mortgage balance at age 66 makes the HECM line of credit super-compelling. He should get one in place, continue to make a monthly payment if he really wants to, but sit back and watch that LOC grow.

    • Dave,

      As a former CPA, all I can tell you is your universal advice is among the worst I have ever read when it comes to HECMs. Here is what you are recommending.

      Let us say that the total upfront costs of the HECM are $23,000. The UPB has just gone from $47,000 on the existing mortgage to $70,000 on a HECM. Let us say you charge a 2.5% margin and the 10 year CMT on the loan is 3.5%. Let us say that the initial note interest rate is 7.1%. Over the 24 years, however, the average effective note interest is just 5.6%. Let us say the borrower continues paying $136 each and every month over that 288 month period. So what is his UPB when he turns 90 if he makes no other payments on the HECM and he takes no payouts from it?

      Congratulations!! Your suggestion has ended 24 years later with the senior only owing $213,024 on his HECM. If the borrower makes NO payments on the HECM, the balance due at age 90 will be $301,505.

      And what did the borrower get for that? The privilege of watching his line of credit grow!!

      This is exactly why HECM originators should NEVDR give financial advice!!! For your own sake and those whom you serve, as to the financial services industry, stay in your own lane. You need to learn how to CORRECTLY run scenarios before providing advice. If I was 10 years younger and still the partner in charge of taxes for the ninth largest CPA firm in Los Angeles County, I would never refer you to any firm client and your name would be on the list of financial advisors who the firm will never recommend.

  4. Shannon,

    Let’s look at the forward mortgage. If the interest on the loan is 3%, the payment is $136, and the loan balance is $47,000 as of today, the period of the loan is 799 months or 66 years and 7 months from today. If the borrower is 66 today, the borrower would be either 132 or 133 if the loan was simply performing until payoff.

    Payments for the first 12 months would be $1,632. The interest paid would be $1,407 and the principal paid just $225. As you can see the principal paid would hardly put a dent in the $47,000 owed on February 8, 2023. The next year the interest would be $1,400 and the principal paid just $232. Run a simple amortization schedule and you will see that the payoff date is much different than the borrower’s statement of fact.

    Somehow either the borrower has provided incomplete information or the borrower has forgotten and/or is confused about the terms of the loan.

    When it comes to mortgages, we should not be all that naive.

    • Jim- agreed- as pointed out the numbers were suspect. However, the underlying question certainly deserves consideration as you noted.

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