The voices of Urban Institute's researchers and staff
March 17, 2016

What having a mortgage can tell us about other debt

March 17, 2016

The 118 million adult Americans who own their homes tend to share certain financial and demographic characteristics—higher median incomes, higher credit scores, and they tend to be older than renters, for example. But does having a mortgage change any of these patterns?

In a new report, we break down the 118 million homeowners and 127 million renters into six groups based on whether or not the owner or renter has ever had a mortgage. The patterns that emerge from these comparisons help us better understand how mortgages relate to other consumer debts.

The six groups

  1. Renters with no mortgage in the past 16 years (RNM): The largest group of consumers, an estimated 96 million or 39 percent of the 245 million US adults in 2015, are renters who have not taken out a mortgage in the past 16 years.
  2. Owners with a current mortgage (OCM): The second largest group, estimated to be 67 million or 26 percent of the adult population, are homeowners who are currently paying a mortgage.
  3. Owners with mortgage in the past 16 years but not now (OEM): The third largest group, 28 million or 12 percent of the adult population, are homeowners who had a mortgage at some point in the past 16 years but do not currently have a mortgage on their home.
  4. Owners with no mortgage in the past 16 years (ONM): 23 million or 9 percent of adults live in a home that has not had a mortgage on it in the past 16 years.
  5. Renters with mortgage in the past 16 years but not now (REM): 19 million or 8 percent of adults rent their home but have had a mortgage in the past 16 years.
  6. Renters with a current mortgage (RCM): 12 million or 5 percent of adults rent their home and are, simultaneously, paying a mortgage on another property.

The patterns

Five patterns emerge that largely hold true over different age categories. Our interactive tool helps visualize these differences.

 
  1. Owners and renters with current mortgages have similar credit profiles. Overall, both OCM and RCMs have similar, generally high credit scores (over 700). About half of both groups have an auto loan and more than 80 percent of both groups have credit card debt or spending. The percent of debt collections and public records of debts owed are similar and modest; and less than one in five people in each group have a student loan. Renters with current mortgages are, however, slightly younger than owners with current mortgages. The average age of the renters group is 45 compared with 51 for the owners. 
  2. Renters who have never had a mortgage are younger and have lower credit scores and more debt problems than the other groups. RNMs are younger than the other five groups, less likely to have credit card debt or spending but much more likely than the other five groups to have a debt in collection. This group also has the lowest credit scores, a concern given that this is the largest group and the group that might be interested in eventual homeownership.
  3. Renters who once had a mortgage are similar in age to renters and owners with current mortgages but have more debt problems. Renters who had a mortgage are about the same age as those who currently have mortgages but debt problems separate the two groups. REMs have the highest percent of public debt records (28 percent) and the second highest percent of debt in collections (37 percent). This group uses auto loans and credit cards less than the two groups with current mortgages, possibly because of difficulties in obtaining credit.
  4. Owners who have paid off their mortgage have higher credit scores but more debt problems. Compared to owners with current mortgages, those who have paid off their mortgage have more debts in collection and seem also to be a bit debt shy, using auto loans, credit cards and student loans less than the two groups with current mortgages.
  5. Homeowners with no mortgage for 16 years are older and more debt-shy. These 23 million homeowners with an average age of 64 have relatively low usage of auto loans, credit cards and, surprisingly, home equity lines of credit—just 5 percent.

Mortgages offer millions of Americans the best avenue to obtaining homeownership—a key wealth building tool. Our new findings help policymakers further understand exactly how mortgages interact with other financial decisions for American families.

Rose Inman stands on the walkway at the home she is about to lose Monday, May 11, 2009, in Seattle. Inman has been laid-off twice and can no longer afford her $3,100 monthly mortgage payments and hasn't had any luck getting her mortgage bill lowered. Photo by Elaine Thompson/AP

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