Many Americans begin to take on debt in early adulthood, and for those who become homeowners, this eventually includes mortgage debt. When evaluating a borrower for a home loan, mortgage lenders look at the borrower’s debt-to-income ratio (DTI), the percentage of gross monthly income that is used to pay down debt. It is an indicator of how much additional debt a borrower can reasonably take on before it becomes unaffordable. Too much debt, and the borrower might not be able to get approved for a mortgage. For borrowers with too many mortgages, a higher DTI ratio could make it harder to get other forms of credit, like a car loan or personal loan, in the future.
Average Mortgage Debt: Key Statistics
- Average mortgage debt in 2021: $229,242, according to Experian
- Generation with highest average mortgage debt in 2021: Generation X ($259,100), according to Experian
- Generation with lowest average mortgage debt in 2021: Silent Generation ($163,254), according to Experian
- Women’s Average Mortgage Debt (as of Q2 2019): $192,368, according to Experian
- Average Male Mortgage Debt (as of Q2 2019): $211,034, according to Experian
Average mortgage debt by generation
Americans typically start taking on debt as young adults, slow their rate of borrowing in middle age, and work to pay off their loans as they near or during retirement.
For each generation, this trend has been accompanied by fluctuations in mortgage rates and the appreciation of house prices, which has accelerated considerably in recent years. In February 2012, the median price of existing homes was $155,600, according to the National Association of Realtors. At the same time in 2017, the median was $228,200. By February 2022, it had jumped to $357,300.
Average mortgage debt per year
With rising house prices requiring higher loan amounts, average mortgage debt has increased over the past five years.
Good debt versus bad debt
Most households are in debt in one form or another. This debt is often classified asGood or bad.” Good debt is debt that can help you advance financially, such as taking out a student loan to get a degree that will help you enter a fulfilling or lucrative career. Mortgage debt is generally considered good debt in that it allows you to accumulate equity in a home, which contributes to your overall wealth.
In contrast, a bad debt drains your finances without providing any significant gain (literally). For example, you may be paying high interest on a long-term car loan, but your car is also losing value. Another example is high-interest credit card debt.
How to reduce mortgage debt
Although a mortgage is considered good debt, reducing your mortgage debt can help you save significantly on interest, gain peace of mind, or prioritize other financial goals. Here are some ways to reduce the amount you owe on your mortgage:
- Buying a cheaper house: In other words, the lower the price of the house, the less mortgage you will have to pay.
- Save more for a down payment: If you can afford to put more money up front on a house, you won’t need such a large mortgage. Here are tips for saving more for a down payment and tips for getting down payment assistance.
- Shorten the term of the loan: If you’ve had your mortgage for a while and want to speed up repayment, you might consider refinancing it for a shorter loan term, which could potentially lower your interest rate in addition to reducing the time you proceed to repay it. With a shorter term, however, you’ll likely have higher monthly payments. Refinancing also comes with closing costs.
- Make additional principal payments: If you want to pay off your mortgage faster, but don’t want to be locked into higher monthly payments with a shorter term, consider making additional principal payments. You can do this in several ways, including bi-weekly payments.
- Obtain a loan modification: If you’re having financial difficulty, you may be able to coordinate a loan modification with your lender, who will adjust the interest rate or term (or both) to help make your mortgage more manageable.
At the end of the line
The amount of debt you have and the nature of that debt have a huge impact on your financial life. Although the average mortgage debt has increased in recent years, this form of debt is considered good debt because it is an investment in your future. Bad debts, on the other hand, burn through your budget without providing a deliverable. If you’re over-indebted with bad debt, it’s important to manage your load so that wealth-building opportunities like a mortgage stay close at hand. Here are strategies and tips for paying off your debts.