Mortgage Use Among Those Over 65 Has Been Increasing

While you might assume that retirement coincides with paying off your mortgage, times are changing. A growing share of Americans ages 65 and older are holding mortgage loans and other debt.

In 1998, 26% of Americans ages 65-74 held home-secured debt such as mortgages, yet by 2022, that grew to 32.2%. This trend is particularly pronounced among those ages 75 and up, with 27.6% holding home-secured debt in 2022, up from 11.6% in 1998.

Multiple factors are driving these trends, such as longer lifespans and lifestyle changes, but also out of financial necessity in some cases. As more seniors carry mortgages, their retirement planning, long-term housing decisions, and overall financial well-being are affected.

Why More Seniors Are Taking on Mortgages

Seniors may take on mortgages and other housing debt, like home equity loans, for several reasons, such as:

• Higher housing prices: As prices rise, affording a home often means taking out a long loan, such as a 30-year mortgage, which can mean continuing a loan into your 60s, 70s, or beyond.
• Refinancing during low-interest rate periods: Many homeowners took advantage of low interest rates during the pandemic by refinancing, which may save money overall, but extend mortgages into retirement if refinancing extended the loan term.
• Tapping home equity: One upside of rising housing prices is that it increases seniors’ home equity. Some who face rising living expenses or unexpected costs may need to tap into that home equity out of necessity, while others might simply want to access more cash, such as to help family members now, rather than leaving everything as an inheritance.
• Longer lifespans and delayed retirement: As people live longer, continuing a mortgage past age 65 does not carry as much risk of outliving the loan term. Also, more seniors continue to work well past age 65, so that affects their housing decisions. Having an income later in life could mean making different choices, like buying a new home in your 60s in a more expensive area.

The Financial Impact of Mortgage Debt in Retirement

While some seniors willingly take on mortgage debt and can afford to do so, many face increased financial challenges or at least changes, such as:

• Reduced discretionary income due to monthly mortgage payments eating into budgets.
• Potential for increased financial stress due to carrying debt that may be difficult to pay off and require changes like working later in life than you’d like.
• Changing retirement drawdown strategies, i.e., taking out more each month than you originally planned, so you can cover mortgage payments, thereby increasing the risk of outliving retirement savings.
• Possibly losing eligibility for needs-based programs like Medicaid, such as if unspent funds from a cash-out refinance or reverse mortgage are counted as assets that put you over the eligibility limit.
• Increased risk of foreclosure or a forced home sale if an economic downturn reduces your income or ability to draw down retirement assets due to investment losses.

When a Mortgage in Retirement Might Make Sense

• While there are certainly risks associated with taking on housing debt later in life, there can be several scenarios where it makes sense, such as to:
• Take advantage of low-interest rates so you have more money for investing or general liquidity, rather than having so much cash tied up in a home.
• Supplement income/assets, such as with a cash-out refinance or reverse mortgage.
• Downsize by selling a paid-off home and taking out a mortgage on a less expensive property to have manageable monthly payments while maintaining a larger nest egg in cash or investments of your choice.
• As a bonus, mortgage interest paid can reduce your taxable income if itemizing. While likely not a primary motivator, since you’re generally still going to pay far more in interest than what you get in tax breaks, this could help sway the decision to take out a mortgage in retirement.

The Bottom Line

Holding housing debt like a mortgage past age 65 is becoming more common, but that doesn’t mean it’s always a good idea to carry this debt. If you’re approaching or already in retirement, weigh the potential advantages of taking out a mortgage like enjoying greater liquidity against the risks such as a tighter monthly budget and chance of foreclosure if things take a turn for the worse. The decision is not one to take lightly, so consider discussing it with a financial advisor and see how it fits into your retirement plan and overall financial picture.