The Study on the Changing Role of Home Equity and Reverse Mortgages, by the MetLife Mature Market Institute, finds that growing numbers of older homeowners are starting to tap their housing wealth,
using home-equity loans or reverse mortgages. However, they are often unsure about how to include this asset as an integral part of their financial strategy, rather than as a last resort.
Mortgage Status Among Homeowner Households Age 62 and Older |
Status | % of Homeowner HH |
Regular
mortgage | 21.5% |
Regular mortgage plus home equity loan | 4.8 |
Home equity loan only | 8.5 |
Reverse mortgage | 0.7 |
No home loan | 64.5 |
Source: American Housing Survey, 2007 |
Sandra Timmermann, Ed.D, director of the MetLife Mature
Market Institute, said "... Retirees need a new framework for thinking about how home equity can help assure their financial security and enable them to age in place without fear of running out
of money."
The study finds that 35% of older Americans see their homes not just as places to live, but also as collateral for a loan. 14% are taking cash out of their house through a home
equity loan or reverse mortgage. Older homeowners are using home equity to increase income security, enhance financial resilience to deal with unexpected expenses, and to improve debt management,
among other things
This is a growing reality for affluent households who seek to enhance their lifestyle, as well as middle-income families for whom it may be their only choice.
Attributes of Homeowner Households Age 62 and Older, by Wealth Status |
| Affluent | Middle
Income | Poor |
| House-rich and cash-rich | House-rich or cash-rich | Moderate
wealth | House-rich and cash-poor | House-poor and
cash-poor |
Median Household Values |
Age of householder | 69 | 70 | 73 | 76
| 76 |
Home value | $409,000 | $175,000 | $125,000 | $350,000 | $65,000 |
Household income | $81,900 | $49,800 | $25,324 | $12,468 | $12,000 |
Other Household Demographics |
Married | 75.9% | 64.9% | 48.0% | 27.3% | 22.7% |
Has a college education | 55.2% | 34.1% | 15.6% | 20.7% | 8.3% |
Householder worked last week | 32.6% | 24.8% | 12.5% | 5.7% | 5.5% |
No mortgage | 48.1% | 59.7%
| 71.6% | 70.8% | 79.3% |
Total |
Homeowner households age 62+ | 4,353,625 | 6,449,825 | 6,562,602 | 1,037,121 | 3,348,454 |
% of total households (21.75 million) | 20.0% | 29.7% | 30.2% | 4.8% | 15.4% |
Source: National Council on Aging (NCOA) calculations based on data from the American Housing Survey, 2007. |
The study highlights different options for using home equity that are not part of the current national conversation. These include:
- The use of
reverse mortgages to delay the age at which one might begin to collect Social Security, thus increasing the amount of one's ultimate monthly Social Security income
- Reverse
mortgages as a stopgap measure to consolidate credit card debt, to cover investment losses or to defer mortgage payments
- Periodic distributions that would tap home equity to help
people meet expenses if they outlive their savings/retirement income
- Programs that combine public benefits with modest amounts drawn from home equity to help seniors stay at
home
- Home equity lines of credit for emergency spending, such as home maintenance, without which many homes decay and lose value
- Reverse mortgages with a line of credit
option for borrowers to pay out-of-pocket health and home care expenses.
"With the right guidance and policy protection, reverse mortgages can be an important financial option
for Boomers who do not have adequate savings." said Timmermann. The report emphasizes that consumer education must be part of any new efforts aimed at increasing the use of reverse mortgages.
The full study, Tapping Home Equity in Retirement: The MetLife Study on the Changing Role of Home Equity and Reverse Mortgages, and The Essentials: Reverse Mortgages, are available here under "What's New."