People who have reached their 50s may wonder if it's too late in life for them to commit to a mortgage and purchase a home. Years ago, the answer would likely be yes.
However, growing numbers of Americans are working, or plan to work, well beyond the traditional retirement age of 65 in order to maintain a comfortable income. And, whether they're working or retired, the increase in life expectancy means that most people in their 50s have many years of life ahead of them.
Below are some reasonable questions you might ask yourself before signing up for a new mortgage. Most are relevant to people of any age but they are particularly pertinent to people in their 50s.
Key Takeaways:
- Older homebuyers, now in their peak earning years, might consider a 15-year mortgage or even a shorter term in order to pay it off before they retire.
- Empty-nesters might consider where they really want to live long-term.
- Maybe it's time to downsize, or at least right-size your home to fit your needs now.
1. How Big a Home Do You Need?
It’s not always wise to buy the biggest home you can afford, particularly if your children have grown up or soon will. Big houses are expensive to heat and cool, labor-intensive to maintain and clean, and their property tax bills are bigger as well.
On the flip side, a bigger home will allow you to accommodate grandkids for overnight visits.
2. Is a Short-Term Mortgage Better?
For those purchasing a home in their 20s and 30s, a 30-year mortgage is the obvious financing choice—in part, because people of that age don’t usually have the financial means to make the higher payments associated with shorter-term loans.
But people in their 50s might opt for a 15-year mortgage. They should be in their peak earning years. They'll want to make sure they pay off the loan while they’re still working. For that matter, they won't want to be forced to put off retiring because of the burden of a mortgage.
A mortgage calculator is a useful tool to budget these costs.
3. Pay Off the Mortgage or Save for Retirement?
Americans at any age are struggling to maintain a balance between a good standard of living now and sufficient savings for retirement down the road. When you're in your 50s, buying a house might cut into your retirement savings significantly, if it pushes your living costs up much higher.
Maximizing your retirement contributions may ultimately net you more money than the cash you’d save by paying off a mortgage in the 15 or 20 years before you retire.
Once you hit 50, your annual contribution limit to an individual retirement account (IRA) increases by $1,000 over the $6,500 standard limit in 2023. For 401(k) plans, people aged 50 and over can contribute $7,500 more than the standard $22,500 limit as of 2023.
That's a recognition by the IRS that you may need what it calls a "catchup contribution" to boost your retirement savings.
4. Where Will You Live?
Location significantly influences home prices.A house in St. Louis is going to cost much less than an identical home in San Francisco.
If you’re not inclined to move across the country, consider price differentials across different neighborhoods in your area. But keep in mind that homes in more remote areas may be cheaper, but they might not be the best choice for commuters.
5. How Is Your Health?
If you or a family member has expensive medical issues, you may need to allocate your savings to medical expenses rather than to a new home.
This is another good reason to avoid overspending on housing.
6. How Often Do the Kids Visit?
If your extended family visits often, buying a larger home with plenty of bedrooms makes sense. But if your family only visits every few years, paying for hotel rooms is more economical than paying off the mortgage on a large home.
7. When Is the Right Time?
If you have children who are in college or will be soon, you might avoid buying a new home for now. Unless, that is, you plan to downsize, in which case some of the money from selling the old house can be used to cover tuition expenses.
Is It Difficult for an Older Homebuyer to Get a Mortgage?
Yes. Applications to finance or refinance a home are more likely to be rejected if the applicant is older.
A 2023 white paper by economist Natee Amornsiripanitch, of the Federal Reserve of Philadephia, says that the probability of rejection of a mortgage application climbs steadily with the age of the applicant and accelerates in old age. If they are approved, they tend to pay slightly higher interest rates. In fact, age appears to be as likely a barrier to a mortgage application as race and ethnicity.
Isn't Discrimination Against Older Mortgage Applicants Illegal?
You bet. It's illegal to reject any loan applicant on the basis of age. But there are a number of legally permissible factors that work against older applicants. These include:
- The length of time you are likely to continue having your present income.
- The sources of your income. (Investment income is considered a bit riskier than earned income.)
On the other hand, some of the criteria for approval favor older applicants. For example, people in their 50s usually can show a longer history of successfully handling credit.
Can a 70-Year-Old Get a 30-Year Mortgage?
Yes. There is no age limit to a mortgage application. If you have a substantial down payment and a steady income (which can include pension and Social Security payments), you have a good chance of approval regardless of your age. As noted above, there's a high rejection rate for older applicants but you can get past it with better-than-usual qualifications that will get you past that age barrier, such as a higher down payment and substantial savings.
The Bottom Line
If you’re in your 50s, it’s not too late to buy a new home, but it's key to ask the right questions and make the wisest decisions possible. Above all, avoid getting stuck making mortgage payments years into your retirement.
