What Are the Roles of Mortgages in Retirement?

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by J. Michael Collins, University of Wisconsin-Madison, Erik Hembre, University of Illinois at Chicago, and Carly Urban, Montana State University

Over the past 15 years, mortgages have become much more common among elderly households. Currently, 35 percent of U.S. households age 60 and older are paying off a mortgage. This puzzling trend contradicts what standard life-cycle models predict of household saving behavior, where households accumulate debt in younger years but pay off debt by retirement. This paper investigates the role of mortgages in retirement. We begin by using administrative data from DataQuick of property records and mortgage deeds as wells as Survey of Consumer Finance data to document mortgage and home equity trends among elderly households between 1989 and 2013. We then seek to explain these trends by investigating the relative roles of tax and financial incentives, longevity, and bequest motives in mortgage decisions utilizing both a uniquely constructed panel of households from DataQuick and from the Health and Retirement Study.

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