This paper documents and examines the rise in mortgage usage among older Americans over the past 30 years. It uses data from a variety of sources including the Health and Retirement Study, Decennial Census, American Community Survey, Survey of Consumer Finances, and the American Housing Survey. We begin by documenting the large increase in mortgage usage among older Americans across age and income distributions. We then use regression analysis to test for causes of the mortgage increase and subgroup heterogeneity, in particular focusing on changing health, bequest motives, and tax policy incentives.
This paper found that:
- Americans over age 60 are more than three times as likely to have mortgage debt in 2015 compared to 1980, a 24-percentage point increase. This is a consistent increase across the income distribution.
- Increases to homeownership account for some of the rise in mortgages, but this has increased by only 9 percentage points among Americans over age 60 between 1980 and 2015.
- Younger age groups have had much smaller increases, and sometimes decreases, in mortgage usage and homeownership over the same time period.
- Changes in household characteristics, such as education, urbanization, race, income, and marriage rates explain only a small portion of the increase in mortgage rates.
- Households with below-median assets, and those without pensions, account for a greater share of the rise in older households’ mortgage borrowing.
- Changes in subjective health and bequest motives explain little of the rise in mortgage rates. Variation in the mortgage interest deduction explains part of the differential increase in mortgage usage by age.
The policy implications of the paper are:
- The beneficiaries of mortgage and homeownership subsidies, such as the mortgage interest deduction, have changed substantially over the past 30 years.
- Increased mortgage usage has coincided with less total debt among seniors relative to younger cohorts and has not resulted in increased delinquency. This may indicate that the negative aspects of increased mortgage usage are limited.
- Further investigation into the causes and consequences of mortgage usage is needed in considering appropriate policy responses.