More Retirees Today Have a Mortgage

In one significant way, retirement is materially different than it used to be: far more retirees are still trying to pay off their houses.

Thirty years ago, just one of every four homeowners in their late 60s to late 70s still had a mortgage – today, nearly half do. Once people hit 80, mortgages used to be extremely rare – only 3 percent had them. Today, it’s one in four, Harvard’s Joint Center for Housing Studies recently reported.

Retiree’s financial condition depends on much more than how much they spend on housing – in particular the size of their retirement savings accounts and Social Security checks. But rent or a mortgage payment is typically the largest item in the monthly budget. Being free of both can be a significant boost to one’s standard of living in retirement.

Jennifer Molinsky, a senior research associate at Harvard’s housing center, described several developments over the past three decades that may explain the dramatic increase in the share of retirees with mortgages.

First, she said, Americans today “seem to have less aversion to debt” than the generation that grew up after the Great Depression and was instilled with frugality. Although consumer debt levels always ebb and flow with the economy’s cycles, total debt as a percentage of disposable income is significantly higher today than it was in the 1990s. The 1986 tax reform act also made mortgages a more attractive form of debt to hold. The reform eliminated the income tax deductions for interest on credit cards and other types of consumer debt, with one exception: mortgage interest.

Having a mortgage isn’t necessarily a bad thing. Mortgage rates have fallen dramatically in recent decades. Many retirees who are still making monthly mortgage payments were able to reduce the payments by refinancing old, partially paid off mortgages into new 30-year loans with lower interest rates.

But another factor that may have pushed up the share of retirees with mortgages has been the long-term run-up in house prices, relative to earnings, which makes it increasingly difficult to pay off a house before retiring. In the late 1980s and early 1990s, house prices were about three times the typical household’s earnings, according to the housing center. Today, prices are more than four times earnings.

Further, many baby boomers responded to the nationwide housing market boom in the mid-2000s by extracting equity from their homes, which increased the size of the mortgages they have carried into retirement. The higher debt levels resulting from this extraordinary period of rising prices may be temporary, however, and today’s workers may have less mortgage debt in the future when they retire. Only time will tell.

Whatever the explanation for the greater prevalence of retirees with mortgages, Molinsky said one trend is clearly negative: the share of households over age 65 that are paying more than 30 percent of their income for housing – whether in the form of rent or a mortgage payment – is at an all-time high.

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