Health shocks and mortgage debt payoff among American homeowners over age 50: A survival analysis

• Published date: 01 January 2023
• Author: Qun Zhang,Hyungsoo Kim
• Date: 01 January 2023
• DOI: http://doi.org/10.1111/joca.12503

RESEARCH ARTICLE

Health shocks and mortgage debt payoff

among American homeowners over age 50:

A survival analysis

Qun Zhang | Hyungsoo Kim

Department of Family Sciences,

University of Kentucky, Lexington,

Kentucky, USA

Correspondence

Qun Zhang, Department of Family

Sciences, University of Kentucky,

Lexington, KY, USA.

Email: zxn5921@hotmail.com

Abstract

Mortgage debt is financially burdensome for many older

homeowners in the United States. As people age, declin-

ing health can bring about increased healthcare costs.

Focusing on homeowners aged 50 and older in the U.S.,

we investigate two research questions: (1) To what extent

does a heath shock affect the likelihood of paying off a

mortgage voluntarily or involuntarily? and (2) how long

does a health shock delay the time it takes to pay off a

mortgage? We used eight biannual waves (2004–2018) of

the Health and Retirement Study containing 11,772 bor-

rowers to build survival regression models. Results

showed that a health shock reduced the likelihood of vol-

untary payoff by 12%, while it increased the probability of

involuntary payoff by 18%. A health shock delayed volun-

tary and involuntary payoffs for 30 and 21 months,

respectively. We discuss tax deduction and HELOCs as

strategies to reduce older homeowners' mortgage strain.

KEYWORDS

mortgage debt, health shocks, housing security, survival

analysis, middle-aged and older adults

1|INTRODUCTION

Over the past decade, mortgages have remained the largest household debt in the United States.

About 76.2% of U.S. households over the age of 50 own a home. Among these homeowners,

Received: 15 March 2021 Revised: 17 November 2022 Accepted: 25 November 2022

DOI: 10.1111/joca.12503

© 2022 American Council on Consumer Interests.

J Consum Aff. 2023;57:357–386. wileyonlinelibrary.com/journal/joca 357

about 40.3% have mortgages with an outstanding balance averaging $75,000 (Li & Goodman, 2015).

Ideally, by retirement, debt is paid off, and savings accrued during working years are released to

smooth consumption. Carrying a mortgage into retirement may induce burdensome periodic pay-

ments and financial hardships. This circumstance may result in a less satisfying retirement for

many borrowers who live on a fixed income such as Social Security retirement benefits (Munnell

et al., 2008).

Health generally declines with aging, and older adults tend to live with chronic illnesses

and are more susceptible to health shocks. Three out of five adults over the age of 65 who live

in the U.S. have two or more chronic conditions. They pay an average annual out-of-pocket

(OOP) expense of $1293 (Centers for Disease Control and Prevention, 2018) to cover health

costs, accounting for almost 25% of the mean monthly household income of $4898 (Svynarenko

et al., 2019). Researchers have found that health shocks can predict the financial fragility associ-

ated with liquidity constraints and higher unsecured debts (Lee & Kim, 2008; Lusardi

et al., 2020; Zurlo et al., 2014).

Some older borrowers struggle with mortgage payments, potentially giving up homeownership

and transitioning to rental homes. When a health shock occurs, medical and indirect costs can

inhibit borrowers from making mortgage payments on time. To reconcile the competing demands

from mortgages and medical expenses, it is important to understand how health shocks impact

mortgage debt for the older population. Therefore, this paper investigates the following two

research questions: Among borrowers over the age of 50 in the United States, (1) To what extent

does a heath shock affect the likelihood of paying off a mortgage voluntarily and involuntarily?

and (2) how long does a health shock delay the time it takes to pay off a mortgage? We use eight

waves of Health and Retirement Study (HRS) data (2004–2018) to build survival analyses. Our

results would provide policy implications in addressing mortgage debt problems for older bor-

rowers experiencing health shocks.

2|LITERATURE REVIEW

2.1 |Determinants of using a mortgage

2.1.1 | Economic factors

The life-cycle hypothesis suggests that a rational consumer's debt demand is influenced by age

(Modigliani & Brumberg, 1954). People smooth consumption across their lifespan, making it

possible to keep marginal utility constant and maximize satisfaction. Young people tend to have

less savings and earn an entry-level salary in nearly all job categories. Thus, it is less affordable

for them to buy a home, so it may be necessary for younger people to borrow against future

income to purchase a house (Xu et al., 2015). Income increases and wealth grows as people

enter middle age. Therefore, debt is gradually paid off; as retirement draws near, wealth peaks

while debt remains minimal. Net worth is then released in later years to maintain a similar

standard of living. Thus, decreasing mortgage debt is common among middle-aged and older

borrowers

Empirical evidence suggests that housing costs relative to income are an important eco-

nomic factor in deciding to take out a mortgage. To measure housing costs given a borrower's

income, a loan-to-value ratio (LTV) or a loan-to-income ratio (LTI) is often used as proxies. For

example, the U.S. Department of Housing and Urban Development (2014) suggests a monthly

358 ZHANG AND KIM