The painful reality of mortgage stress in retirement

If you own your home and have paid it off by the time you retire, you can live for 'free' - no more mortgage repayments - whereas if you rent when you retire, your rent keeps going on and on.

But Australians are finding it harder to pay off their mortgages and 28% of over 55s are still paying off the mortgage on their homes, according to 2015 figures compiled by the Australian Housing and Urban Research Institute (AHURI). This is double the number in 1987.

The average mortgage to be paid off has shot up too. It now sits at $185,000 in 2015, up from $27,000 in 1987.

One of the reasons for the jump in the debt burden for older Australians is the property boom, explains the report's lead author, Professor Rachel ViforJ of Curtin University.

But this has resulted in much higher average annual mortgage repayments that have tripled from $5,000 to $17,000 per annum in real terms.

Home ownership has often been dubbed the fourth pillar of the retirement incomes system, points out ViforJ.

She says this pillar may be crumbling due to rising mortgage indebtedness and threats to home ownership's status as Australians' preferred choice.

One of the risks of leaving repayments until later in life is unexpected life shocks such as unemployment, ill health and marital breakdown that are more common later in life.

The report points out that these can plunge older mortgagors with over-optimistic expectations into severe mortgage stress.

Increasingly superannuation savings are being used to pay down the mortgage, particularly in a declining property market as home equity falls, rather than provide a retirement income.

ViforJ found that if older people experience any difficulty in meeting the repayments, their mental health takes a hit.

"As growing numbers of older Australians carry mortgages into retirement the rising trend in mortgage indebtedness will have negative impacts on the wellbeing of an increasing percentage of the Australian population," says ViforJ.

Psychological surveys measuring mental health on a scale of 0 to 100 reveal that mortgage difficulties reduce mental health scores for older men by around 2 points and an even greater 3.7 points for older women.

ViforJ says older female mortgagors' mental health is more sensitive to personal circumstances than older male mortgagors. Marital breakdown, ill health and poor labour market engagement all adversely affect older female mortgagors' mental health scores more than men's.

Certainly more Australians are accessing the Commonwealth Rent Assistance by seniors aged 55 years and over. The AHURI study forecasts CRA to rise from 414,000 in 2016 to 664,000 in 2031, an increase of 60%.

In contrast the population of seniors is expected to increase by a much lower 35%. The Australian Government CRA budget cost is predicted to jump from $972 million in 2016, to $1.55 billion in 2031.

In addition the unmet demand for public housing from private renters aged more than 55 is expected to rise by 78%-from 200,000 to 440,000 households-between 2016 and 2031.

The report says that there is a need for long term planning for financial security in retirement. Paying down the mortgage needs to be understood by improving people's financial literacy needs.

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