In this article, we will explore whether most retirees still have an outstanding mortgage when they enter retirement. Paying off the mortgage by retirement is seen by many as an important financial milestone. However, the data shows that a significant proportion of retirees do still have mortgages. We will look at the key statistics and trends around retiree mortgages, analyze the pros and cons of having a mortgage in retirement, and provide tips for managing mortgage debt during the retirement years.
Key Statistics on Retiree Mortgages
According to data from the Consumer Finance Protection Bureau’s National Survey of Older Americans, 37% of homeowners aged 65 and over still had a mortgage in 2019. This equates to around 14.3 million older Americans with mortgage debt. The median mortgage balance for retiree households was $80,000.
The percentage of retirees with a mortgage has steadily increased over the past few decades. Back in 1989, just 22% of retirees had a mortgage. By 2001 this had risen to 30% and by 2011 it was 35%. So the trend is clearly towards more retirees entering their later years still owing money on their home.
Younger retirees are more likely to have a mortgage than older retirees. Of retirees aged 65-69, 50% have a mortgage. This drops to 36% for 70-74 year olds and 23% for those over 75. So mortgage debt tends to be paid off later in retirement.
The states with the highest proportion of retired mortgage holders are:
- Hawaii – 57%
- Delaware – 50%
- Alaska – 50%
- Nevada – 49%
- Maryland – 47%
While the states with the lowest rates are:
- Iowa – 22%
- Wisconsin – 24%
- Indiana – 28%
- Kentucky – 28%
- Michigan – 28%
So living in certain regions appears to influence the likelihood of carrying mortgage debt into retirement.
Reasons More Retirees Have Mortgages
There are several key reasons explaining the upward trend in retirees having mortgages:
- Bigger mortgages taken later in life – Many baby boomers took out larger mortgages later in their working careers to move to bigger, more expensive homes. This has left them still paying down debt as they enter retirement.
- Rising house prices – Rapid home price appreciation in recent decades has enabled people to borrow larger amounts against their home equity. Higher mortgages take longer to pay off.
- Refinancing – Many homeowners have refinanced their mortgage multiple times, spreading payments over more years. This prevents them fully paying off their mortgage before retiring.
- Delayed retirement – Increased life expectancies and inadequate retirement savings have led many to work longer before retiring. This gives more years to pay down a mortgage.
- Using home equity – Some retirees take out home equity loans or lines of credit to access cash from their home to fund retirement.
These factors have combined to make carrying mortgage debt into retirement more commonplace.
Pros of Having a Mortgage in Retirement
Despite the conventional wisdom that retirees should strive to pay off their mortgage, there are some potential benefits to maintaining mortgage debt in retirement:
- Lower monthly costs – Monthly mortgage payments are generally lower than renting a similar property. This helps make retirement living expenses more affordable.
- Tax deductions – Mortgage interest and property taxes remain tax deductible, providing retirees with helpful tax breaks.
- Preserving savings – Retirees can keep more money invested rather than depleting savings to pay off the mortgage lump sum.
- Building home equity – As the mortgage is paid down and home values appreciate, equity builds as a financial cushion for later years.
- Inflation hedge – A fixed-rate mortgage locks in housing costs and prevents inflation driving up monthly expenditures.
Used strategically, carrying some mortgage debt can help retirees effectively manage expenses, taxes and long-term finances.
Cons of Having a Mortgage in Retirement
There are also some potential drawbacks retirees should be aware of with keeping a mortgage:
- Reducing cash flow – Monthly mortgage payments take a bite out of retirement income, reducing cash flow for other goals.
- Tying up home equity – Money owed on a mortgage cannot be accessed in an emergency.
- Risk of foreclosure – If unable to make payments, the consequences of losing a home are dire.
- Impact of interest rates – Adjustable rate mortgages leave retirees vulnerable to rising interest costs.
- Reducing flexibility – Having a mortgage complicates downsizing or relocating in retirement.
Retirees need to ensure they adequately factor in these risks when deciding whether to continue mortgage payments.
Tips for Managing a Mortgage in Retirement
For retirees who do plan to maintain a mortgage, here are some tips to help effectively manage mortgage debt:
- Choose a fixed interest rate to lock in low, stable payments.
- Set up biweekly payments to accelerate payoff and reduce total interest.
- Pay down principal faster by allocating extra lump sums when possible.
- Shorten the loan term to complete payment sooner.
- Monitor home value and available equity through regular appraisals.
- Compare reverse mortgage options if needing to tap home equity.
- Claim the mortgage interest deduction annually on tax returns.
- Have a plan to pay off mortgage from retirement savings if necessary.
- Consider downsizing to a smaller home to eliminate the mortgage.
Proactively managing mortgage debt helps retirees minimize risks and maximize benefits.
The Outlook for Retiree Mortgages
Given the trends over recent decades, it seems likely that an increasing percentage of retirees will have mortgages going forward. Some projections estimate up to 50% of retirees could have mortgage debt within the next 10-15 years.
Rising house prices, bigger mortgages, longer working lives and greater use of home equity will all contribute to this continued increase. However, individual circumstances and locations will still have a big impact.
Retirees will need to look carefully at the pros and cons for their situation and implement strategies to effectively manage mortgage debt in retirement.
Conclusion
While having a mortgage paid off by retirement has long been a financial goal, the data shows this is no longer the reality for a large proportion of retirees. Today, over a third of retirees enter their later years still owing money on their home.
This looks set to rise further in the coming years as bigger mortgages taken later in life become more common. There are valid arguments on both sides for and against carrying mortgage debt in retirement.
Retirees will need to weigh up their own individual circumstances and put plans in place to either pay off their mortgage quickly or manage ongoing mortgage payments. With wise planning, a mortgage doesn’t have to be detrimental even for retirees on fixed incomes.
