What Federal Reserve Data Reveals About Retiree Homeowners

According to the Federal Reserve’s latest Survey of Consumer Finances (SCF), homeownership becomes more common across older age groups and peaks among adults ages 65 to 74.

Many Americans hope to own their home by the time they retire, Investopedia noted. It said that retirement often translates to having less money to live off, so it’s understandable to want rent or mortgage payments out of the equation by that time.

Most retirement-age homeowners own their home outright. That fact can lower living costs, although prioritizing mortgage payoff isn’t automatically the right money move for everyone, the website said.

Investopedia said that only 45% of adults ages 25 to 34 own a home and that the share rises to 64% among 35- to 44-year-olds, and continues climbing through the retirement years.

It peaks at 81% among adults ages 65 to 74 before declining at older ages, the website noted.

That’s not surprising, Investopedia said, because buying a home usually requires substantial savings for a down payment and upfront costs, as well as the income and credit profile needed to qualify for a mortgage.

Both of those can take time to establish.

For example, first-time home buyers put down 10% of the purchase price on average. Applied to the U.S. median home price of $408,776, that would mean a down payment of more than $40,000.

That’s a lot of money to save, especially for younger adults who may also be paying rent or student loans while covering other major expenses, Investopedia said.

It noted that while homeownership builds up during midlife, it begins to decline among the oldest age groups. A common reason is that some older adults sell their homes after losing a spouse or moving to assisted living or long-term care.

Most Older Homeowners Have No Mortgage

Investopedia noted that the older people are, the more likely they are to fully own their home. It said that roughly 73% of homeowners ages 65 to 69 have no mortgage or home equity loan left to pay off. That share rises with age, the website noted, reaching 83% among homeowners ages 75 to 79 and 92% among those 85 or older.

There’s a simple reason, Investopedia noted. The longer someone has owned a home, the more time they’ve had to pay down the loan.

Commonly, mortgages are for 30 years, so homeowners who stay in place for decades may retire with little or no balance left.

But not everyone follows this path, Investopedia said. Rather, many people sell one home and buy another over the years, or refinance along the way, which can reset the mortgage clock.

Home prices also have helped older generations become mortgage-free because many homeowners in the oldest age groups bought decades ago, when houses cost much less in nominal terms, giving them more time to build equity and pay down their loans, Investopedia noted.

The Case for Paying It Off

Investopedia said that when a homeowner retires, they may have less income and fewer opportunities to increase it. That can make eliminating a large monthly expense like a mortgage especially appealing.

Paying it off also gives the homeowner a return roughly equal to the interest rate you’re no longer paying. That can be attractive if that rate is higher than what one could reasonably earn on a low-risk investment.

The Case for Keeping a Mortgage

If your mortgage rate is fixed and lower than what you could reasonably earn on a low-risk investment, Investopedia said that keeping the loan could make sense. Instead of using a large sum to pay it off, you could keep that money invested or available for other needs, the website said.

Your broader finances matter, too. Before paying off a mortgage, it may make more sense to tackle higher-interest debt and make sure you have sufficient retirement savings and an emergency fund. Home equity isn’t readily accessible, so using too much of your cash to pay down the mortgage could leave you short if an unexpected expense comes up.