The goal of this paper is to learn more about the demand for the amount of mortgage debt owed by United States home owners. Mortgage debt is defined to be the amount of outstanding household debt secured by the owner’s principal residence; mortgages for second homes and other real estate are not considered, but second mortgages and home equity loans are. The analysis focuses on the behavior of individual households and examines variations in the their demand for mortgage debt with respect to a variety of characteristics such as household income, age, education, and other characteristics of the household. Of particular interest is the responsiveness of the demand for mortgage debt to the tax rate at which interest on mortgage and consumer debt can be deducted. The 1983 and 1989 Surveys of Consumer Finance are used to estimate the demand for mortgage debt. The analysis offers strong support for the hypothesis that the demand for mortgage debt is highly responsiveness to a change in the rate at which mortgage interest can be deducted. As such, the elimination of the mortgage interest deduction can be expected to lead some households to shift away from the financing of owner-occupied housing with mortgage debt and toward the use of their own assets (equity finance).

Document Type

Working Paper






Metropolitan Studies Program Series


The work for this paper was supported by a research grant from the Office of Housing Research of Fannie Mae and will be published in the Journal of Housing Research. The encouragement and support of Isaac Megbolugbe was especially appreciated. Ellen Roche was instrumental in the initial development of this project. This paper also benefitted from conversations with Amy Bogdon, Jan Brueckner, Henry Buist, Steve Grenadier, Patric Hendershott, Larry Jones, David Ling, Gary McGill, Jim Shilling, John Weicher, participants in workshops at Fannie Mae, Ohio State University and Syracuse University, and two anonymous referees. The research assistance of Nelson Wong is much appreciated.


Economic Policy | Economics | Public Affairs, Public Policy and Public Administration | Public Policy


0732 507X

Additional Information

Metropolitan studies program series occasional paper no.179


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Creative Commons License

Creative Commons Attribution 4.0 International License
This work is licensed under a Creative Commons Attribution 4.0 International License.



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