Women of a certain age used to worry that they'd still have acne when Medicare kicked in. Now many find themselves bouncing a grandchild with one hand and writing a monthly first, or second, mortgage check with the other. At 60 or 70, is it time to come to terms with long-term debts?

Given our historically low borrowing rates, advisors might assume that most clients are mortgage-free by now.  But as Paul Nikolai, director and principal at Aspiriant, points out, older workers whose incomes are piecemeal or otherwise difficult to predict may hesitate to let go of cash to pay down debts early. Sometimes clients pay off a mortgage with a one-time windfall, only to find themselves cash poor later.

Shorter-term mortgages, whether new or refinanced, are worth looking into because they can offer the opportunity for lower monthly payments and a lower interest rate.

Lending data from the U.S. Census Bureau show that mortgage origination by borrowers 65 and older jumped ahead with the new century. In the four years prior to 2000, the age group took out just 588,000 mortgages. But the number more than doubled to 1,222,000 from 2000-2004. And new mortgages among the group continued to rise, reaching 1,951,000 mortgages from 2010 to mid-year 2014.  

People in general also are still looking to refinance and for more money. According to the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending October 17, the average loan balance for refinance applications reached $306,400, its highest level in the survey's history. As a part of this group seniors obviously are not slowing down on mortgage debt, which makes the question, "Should a 65 year-old be taking a 30-year mortgage?" very, well, timely.

With higher debts, terms become more significant. If borrowing rates among 30-year and 15- or even 20-year loans are nominal, Nikolai says, “question the flexibility.” If cash flows are uncertain, he proposes, clients can take a 30-year mortgage at $1,500 a month, at similar interest, and pay $1900 to accelerate repayment. If a medical or other event should arise, he reasons, they'll have the freedom to drop payments to $1,500.

Seniors need to consider equity, too, though. Rick Tonkinson, CFP, founding president of the family-owned financial advisory Tonkinson Financial, offers this example: If you take a 30-year mortgage, the lender gets 80 percent of the payments up front interest and only 20 percent goes to principal. But on a 15-year mortgage, the lender only gets 60 percent of the payment, with 40 percent going to principal –  and increasing equity. “That's 20 percent more toward your client's principal,” Tonkinson says. And, most seniors want to leave equity -- not interest -- to their heirs.
 
Consequently, Tonkinson considers “mortgages outrageous ripoffs.” He uses the example of 15-year mortgage he held years ago, which he paid off quickly to minimize his interest cost. Then he used the equity in that property to buy more with low-interest home equity lines.

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