The Association Between High Mortgage Debt and Financial Well-Being in Old Age

The Association Between High Mortgage Debt and Financial Well-Being in Old Age

Alexander Hermann, Christopher Herbert and Jennifer Molinksy

Working paper

Joint Center for Housing Studies Harvard University

2020

Over the last few decades the share of older homeowners (age 62 and older) with mortgage debt has doubled, while the typical amount of outstanding debt relative to home values among this group has tripled. Older homeowners still paying off mortgage debt face high rates of housing cost burdens (paying more than 30 percent of income for housing), leaving less income for other necessities. In addition, homeowners with higher mortgage debt have less housing equity to tap for critical needs and face the ongoing risk of foreclosure. For these reasons, higher levels of mortgage debt may be expected to create lower levels of financial well-being among these individuals. Using both descriptive and multivariate approaches, this paper explores two issues related to these trends. First, it examines the relationship of financial well-being with both the incidence of mortgage debt and housing cost burdens based on the CFPB’s Financial Well-Being Scale as applied to data from the 2016 National Financial Well-Being Survey. Second, it assesses the association between the use of mortgage debt among older adults and measures of financial skill, knowledge, planning, and saving habits. The results indicate that both higher monthly housing costs and the presence of high levels of mortgage debt are associated with lower financial well-being scores and increased likelihood of having a score below 50, which is associated with greater likelihood of material hardship. The results also indicate that older adults with higher financial skill scores and a greater propensity to save are less likely to have higher levels of mortgage debt. The findings suggest that reductions in mortgage debt among older homeowners can improve financial well-being and that efforts to improve financial skill and encourage savings could potentially help bring about such reductions.