Age-old wisdom instructs that a home is a good investment for Americans of any age.
But what if you are retired and still paying it off?
More Americans are entering retirement with mortgaged homes, and the average balance of those loans is rising.
The share of Americans ages 75 and over who are carrying mortgage debt has risen steadily for decades, according to the federal Survey of Consumer Finances: from 5% in 1995 to a historic high of 25% in 2022.
The amount those homeowners owe has risen apace, from a median $14,000 in 1995 to $102,000 in 2022.
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Home values have risen dramatically, as well, which means retirees are wealthier now than two or three decades ago.
Mortgage debt in retirement can be a trap
But retirement researchers warn that mortgage debt in retirement can be a trap.
A recent study, published by the Michigan Retirement and Disability Research Center at the University of Michigan, found that the typical retiree with a mortgage has insufficient assets to cover their mortgage debt.
“The bottom line is: Is the house affordable?” said Tony Webb, a senior fellow at the nonprofit Schwartz Center for Economic Policy Analysis.
Webb researched mortgage debt with colleagues Leora Friedberg, a University of Virginia economist, and Wei Sun, a scholar at Renmin University of China. Their findings appear in a working paper titled “The House: Is it an Asset or a Liability?”
A home can be a powerful asset in retirement, experts say. But it is not a liquid asset: Homeowners cannot easily tap their equity to cover the costs of daily life.
An unmortgaged home was once a retirement perk
Long ago, most American homeowners paid off their mortgages before they retired. Indeed, an unmortgaged home was a perk of retirement.
Through the years, “there’s been a traditional theme in financial planning that advises people to try to pay off their mortgage before retiring,” said J. Mark Iwry, nonresident senior fellow at the Brookings Institution.
But that pattern is changing. In the Michigan study, researchers found that the share of retirement-age homeowners with mortgages rose from 38% to 51% in a generational span of about 25 years. The study compared Americans who turned 65 around 1990 with those who reached that age around 2015.
In those years, the median mortgage balance more than doubled to $108,523, in inflation-adjusted dollars.
Researchers found that retirees with larger mortgages face greater financial peril. Households with more mortgage debt tend to postpone retirement and to spend less money once retired. They also tend to sell their homes sooner than retirees with smaller mortgages or no mortgage.
Blacks and Hispanics with mortgage debt face a stark retirement
Blacks and Hispanics with mortgage debt face a particularly stark retirement, the researchers found.
“If you look at Black households with mortgages, the median financial assets of those households … is basically zero,” Webb said. “And I would seriously worry about those households.”
American homes have soared in value in recent years, creating a historic stockpile of equity wealth for homeowners.
U.S. homes are worth a collective $32.8 trillion as of early 2024, according to federal data. That’s up from $15.6 trillion in the first quarter of 2017.
“One thing is fairly clear: Homeowners steadily build wealth over time, even if they have a mortgage,” said Lawrence Yun, chief economist at the National Association of Realtors.
But rising home prices generate bigger mortgages, and spiraling interest rates inflate the monthly payments.
The median mortgage payment more than doubled in a decade, from $1,037 in 2013 to $2,268 in 2023, according to an analysis by Bankrate, the personal finance site.
Working Americans have options for coping with steep mortgage payments: They can change jobs, take on more work or lobby for a promotion.
Retirees have fewer choices. Most of them no longer work. They generally live on a fixed income: Social Security, maybe a pension, and whatever retirement savings they have amassed.
Why are Americans retiring with more mortgage debt?
Retirement experts offer several reasons why more Americans are retiring with mortgage debt.
Homebuyers are getting older. The typical first-time buyer was 35 in 2023, and the average repeat buyer was 58, both near all-time highs.
Baby boomers have been more comfortable than earlier generations with the idea of taking on a mortgage later in life, Yun said.
And millions of Americans refinanced their mortgages in recent years, an era of historically low rates. Most homeowners now have mortgage rates below 4%, according to Freddie Mac.
“You had clients who were maybe a few years away from retirement, maybe five years away from paying off their mortgage, and rates were 2%. It was one of those things that was hard to pass up,” said Melissa Shaw, a wealth management advisor at TIAA, the financial services nonprofit.
A homeowner who refinances a mortgage usually signs on for 30 years. If you’re 65, that means you’ll be making payments until you’re 95, should you live that long.
“There’s a ton of headwinds for retirees considering taking on a large mortgage in today’s market,” said David Flores Wilson, a certified financial planner in New York. The list of worries includes high interest rates, large closing costs and rising upkeep prices.
‘It’s always a function of cashflow’
If you are retired and struggling to make mortgage payments on your home, experts say, you should think about how long you want to remain there.
“It’s always a function of cashflow,” said Erika Safran, a certified financial planner in New York.
Retirees don’t generally like to move. If your retirement income is enough to comfortably cover your mortgage, “and you like where you live,” Safran said, “then why change?”
For retirees who want out of a mortgage, the alternatives are not necessarily better.
You could sell your house and become a renter. But rents have surged 29% since the onset of the pandemic, prompting President Joe Biden to propose a 5% cap on annual rent increases.
“One of the greatest advantages of owning your home,” in contrast to renting, is that your expenses remain relatively fixed, Safran said.
“If you’re paying $3,000 on a mortgage,” she said, “you’re paying the same $3,000 twenty years from now.”
Can’t afford your mortgage? Consider downsizing
Homeowners with high mortgage payments could consider downsizing to a smaller home with a lower value.
But downsizing in today’s market can be tricky, experts say. Home prices are still rising, and mortgage rates hover above 7%, an unappealing prospect for homeowners paying 3% or 4% interest on their current mortgages.
Another option for a retiree with a burdensome mortgage is a reverse mortgage. It’s a loan that allows a homeowner to tap into equity, with the home as collateral. The loan generally becomes due when the owner dies, moves or sells.
The Michigan research “begs the question, What about reverse mortgages, and why aren’t they a reasonable part of the solution?” Iwry said.
The problem with reverse mortgages, experts say, is that they have a mixed reputation. The industry has become known for high costs, hidden fees and bad actors, according to a USA TODAY investigation published in 2019.
Experts say anyone who is falling behind on a mortgage in retirement should meet with a financial planner, who can help the homeowner map a path forward.
“To a certain extent, it’s a simple math problem,” Shaw said. “Let’s look at the income; let’s look at the expense. Do we have enough?”
