Between 1989 and 2016 the share of homeowners 65 and older with outstanding mortgages doubled, and the outstanding loan-to-value ratio tripled from 13 to 39 percent. Older homeowners with mortgages are more likely to be cost-burdened (pay more than 30 percent of their income for housing) than older homeowners who don’t have a mortgage but it is not clear whether older owners are tapping debt to meet basic needs or using debt to purchase amenities that improve their quality of life. Chris Herbert, Jennifer Molinsky, Kacie Dragan, and I explored this question in “Older Adult Out-of-Pocket Pharmaceutical Spending After Home Mortgage Payoff,” a new working paper supported by the Social Security Administration and published by the University of Wisconsin’s Center for Financial Security.

In the paper, we studied the spillover impacts between outstanding mortgage debt and healthcare use. Using two decades of panel data from the Health and Retirement Study, we assessed changes in out-of-pocket pharmaceutical spending around the time of mortgage payoff for householders over 50. My co-authors and I examined whether later life mortgage payments constrained healthcare spending for some households. Theoretically, after the last mortgage payment, lower housing costs free up income and make resources available to meet other needs. As many older adults struggle to simultaneously pay their health and housing costs, this research expands our understanding of the relationship between late life housing debt and health.

Using a difference in differences analysis, we measured health spending before and after a household paid off its mortgage. We compared changes in out-of-pocket pharmaceutical spending around the period of mortgage payoff to the pharmaceutical spending in households that had no change in their mortgage payment. Our findings suggest that older adults spent 25 percent more on out-of-pocket pharmaceuticals after the mortgage was paid off. This suggests that many homeowners who carried a mortgage weren’t able to afford their medicine as prescribed by their doctors. There are serious health consequences to medication noncompliance, as patients who ration or forgo prescription drugs get sicker, are more likely to enter a nursing home, and are even more likely to die.

We also found notable differences by age. Households aged 50-64 spent nearly 50 percent more on out-of-pocket pharmaceuticals after paying off their mortgage, or about $20 more each month. In contrast, households 65 or older did not significantly change their out-of-pocket spending on pharmaceuticals after they paid off their mortgages. This is not immediately intuitive, since health needs and health spending tend to increase with age, and pent-up demand should in fact be greater for older households. The lack of correlation suggests that age-related subsidies such as Social Security and Medicare benefits eased health spending challenges for those over 65. These additional subsidies available to households around age 65 increased their ability to afford both health and housing. To reduce healthcare rationing by 50-64 year olds, subsidies could reduce the cost of their healthcare or housing, or increase their income.

The study contributes to our understanding of rising late-life mortgage debt. There are numerous pathways by which debt can destabilize older households, and researchers need to continue to clarify the welfare implications of older adult mortgage trends.