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In recent years, we’ve heard a lot about homeowners’ mortgage debt and how it is impacting the housing market as a whole. In particular, we keep hearing about persistently high levels of negative equity, which happens when a homeowner owes more on their mortgage than their home is worth.

But there’s a flip side to that coin. Yes, a large number of homeowners are struggling to manage their mortgage debt. But, perhaps surprisingly, even more homeowners have no mortgage debt at all.

Almost 21 million Americans, or 29.3 percent of homeowners, own their homes outright, unencumbered by a mortgage, according to a recent Zillow® analysis of mortgage data. Analyzing data through the third quarter of 2012, Zillow found that 20.6 million homeowners nationwide own their homes free and clear of mortgage debt.

Using the same data, Zillow found that slightly more than 14 million U.S. homeowners with a mortgage were in negative equity, or underwater, in the third quarter.

Similar to negative equity, the free-and-clear homeownership rate is largely driven by home values – but in a different way. Underwater borrowers are pulled to the surface as home values rise. But we found that in areas with proportionally lower overall home values, free-and-clear homeownership rates are likely to be higher. This makes sense – smaller loan amounts are easier to pay back more quickly.

Demographic factors including the age and credit rating of primary borrowers also influence free-and-clear homeownership rates. Zillow found that 65- to 74-year-olds are most likely to be free-and-clear (20.5 percent), followed by 74- to 84-year-olds (17.9 percent). This is attributed to the fact that the longer someone owns a home, the longer they have to pay off their mortgage. Interestingly, when examining free-and-clear ownership rates as a percentage of homeowners in various age groups, Zillow found 34.5 percent of 20- to 24-year-old homeowners are free of mortgages.

Among homeowners who own their homes outright, 44 percent have a high VantageScore – representing their credit rating – between 800 and 900. Only 15.5 percent of homeowners with the highest credit rating of 900-990 are free-and-clear.

“So far we have used our unique data on how much homeowners owe on their homes primarily to identify underwater and delinquent groups of homeowners,” said Zillow Chief Economist Dr. Stan Humphries. “But looking at those homeowners who are free-and-clear is important, too. Homeowners unencumbered by a mortgage may be more flexible than indebted homeowners, and therefore more apt or willing to list their homes or enter the market for a new property. By determining where these homeowners are located, we can also gain insight into potential inventory and demand in those areas, as well.”

For more data on free-and-clear homeownership, including data at the state, metro and county levels broken down by homeowners’ age and credit rating, please see the full research brief or contact press@zillow.com.

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About the Author

Cory Hopkins manages data public relations for Zillow. To learn more about Cory, click here.

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