Previous generations of older Americans largely paid off their mortgage debt by the time they retired, but today, many older adults are housing cost burdened, paying more than 30 percent of their income on housing expenses. According to our analysis of the 2022 Survey of Consumer Finances (SCF), the share of homeowners ages 75 and older with a mortgage has almost tripled since 1998, reaching 30.1 percent in 2022. The amounts of debt seniors hold also continues to trend upward.

At the same time, many older homeowners have accumulated substantial home equity in recent years that could be tapped for a more comfortable retirement. The problem is they have limited opportunities to extract it.

Expanding the Home Equity Conversion Mortgages (HECM) program could make it easier and less costly for older homeowners to tap into their home equity and alleviate cost burdens. Given the increasing share of older adults with mortgages, these changes could help improve the financial security and housing stability of older homeowners, especially homeowners of color, who hold most of their wealth in home equity.

Older homeowners have faced rising mortgage debt in recent years

The share of homeowners ages 65 years and older with a mortgage has trended upward over the past two decades. In 1998, 10.9 percent of homeowners ages 75 and older had mortgages. That share increased to 13.0 percent in 2007 and to 22.0 percent in 2013. According to the latest SCF, 30.1 percent had mortgages in 2022. The share of homeowners ages 65 to 74 with mortgages has similarly trended upward, increasing from 29 percent in 1998 to 38 percent in 2022.

Over the same period, the number of older adults with mortgages has risen as the US population has aged. In 1998, about 728,000 homeowners ages 65 and older had a mortgage; by 2022, nearly 2 million did.

Moreover, the median amount of mortgage debt has also increased significantly. For homeowners ages 75 and older, median mortgage debt rose sharply to $106,800 in 2022, up from $66,369 in 1998—a 61 percent increase, after adjusting for inflation. This increase is substantive in dollar terms because mortgage debt is the largest type of debt homeowners carry, making up 99.4 percent of all debt for homeowners ages 75 and older. All age groups have experienced rising mortgage debt as home price increases have outpaced inflation, but homeowners ages 65 and older have been particularly affected.

The low interest rates during the COVID-19 pandemic gave borrowers the opportunity to refinance and lower their mortgage payments. Even so, the share of cost-burdened homeowners with a mortgage is up slightly from 2019. According to the 2022 American Community Survey, 40 percent of homeowners ages 62 and older with a mortgage were cost burdened, compared with 24 percent of homeowners younger than 62 with a mortgage.

Access to home equity is critical to the financial stability of older homeowners, especially homeowners of color

As cost burdens rise, it becomes increasingly crucial for older homeowners to be able to access their home equity. Older homeowners accumulated substantial home equity in recent years as home prices rose rapidly during the pandemic. For cost-burdened homeowners ages 62 and older, median home equity (adjusted for inflation) increased from $173,000 in 2019 to $222,000 in 2022.

Having the ability to tap into home equity is particularly important for older homeowners of color, who are more likely to be cost burdened and less likely to have sufficient liquid assets to cover a financial shock. According to the 2022 SCF, the median liquid assets of Black and Latine homeowners ages 62 and older were $3,580 and $6,200, respectively, while white homeowners held $16,270. In addition, 46 percent of older Black homeowners and 47 percent of older Latine homeowners are cost burdened, compared with 38 percent of older white homeowners.

Expanding access to tools for extracting equity would also benefit older homeowners of color because they hold most of their wealth in their homes. Among homeowners ages 62 and older, home equity composed 81 percent of total net worth for Black homeowners and 89 percent for Latine homeowners, compared with 47 percent for white homeowners in 2022.

Expanding HECMs could make it easier for older adults to tap home equity

Given the increasing share of older adults with mortgages and growing mortgage debt, improving access to home equity could help older adults maintain housing stability and financial security in retirement. Reforms to the HECM program would make it easier and less costly for older Americans to tap into their home equity.

HECMs allow households to borrow against the home equity they have built for years and receive a single lump-sum payment, a fixed monthly payment, or a line of credit. But the HECM program has several problems that make it difficult for older homeowners to use.

The HECM program has few lenders. The recent bankruptcy of one of the program’s servicers, as well as industry consolidation, has shown the current HECM product strains the liquidity of its lenders and servicers. Both the Federal Housing Administration and Ginnie Mae have taken actions over the past year to mitigate the liquidity drain on the servicers and are considering other changes. Full implementation of these changes is necessary to ensure the program is available going forward.

To entice more lenders to offer HECMs, policymakers should first complete the changes they have proposed or are discussing. Then, they should consider simplifying the program by eliminating options that few HECM participants use. For example, most participants opt to receive a flexible line of credit, while few opt for fixed payments. Eliminating underused options would make the program easier for borrowers to understand and for investors to evaluate.

Policymakers could also consider introducing streamlined programs that enable participants to convert a forward mortgage to a reverse mortgage. Currently, HECM rules require the borrower to pay off a forward mortgage if they have one. Given the number of older adults with a mortgage, a streamlined option with a one-time draw could allow for lower origination costs for borrowers. In addition, policymakers could consider adding a low-cost option for borrowers who want a small disbursement. Updating and restoring the HECM Saver program—a program with both lower up-front fees and lower annual fees that was in place from 2010 to 2013—would help meet the needs of the growing number of older adults with mortgages.