As today’s economic environment pressures older homeowners to find new sources of retirement income and stretch their savings, growing numbers are starting to tap into their residence’s wealth, using home-equity loans or reverse mortgages. However, with little guidance, they are often unsure about how to include this asset as an integral part of their financial strategy, rather than as a last resort. A recent study by the MetLife Mature Market Institute and the National Council on Aging, calls for a more comprehensive approach to ensure that this asset is used appropriately and effectively to deal with the growing uncertainties of retirement.
The study finds that 35% of older Americans see their homes not just as secure places to live but also as collateral for a loan. About 14% are taking cash out of their house through a home equity loan or reverse mortgage. 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. The study’s findings indicate that older homeowners are using home equity to increase income security, enhance financial resilience to deal with unexpected expenses and to improve debt management.
“There is no doubt that Americans should be more strategic about using home equity,” said Sandra Timmermann, Ed.D, director of the MetLife Mature Market Institute. “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 highlights different options for using home equity that are not a 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.
The report emphasizes that consumer education must be part of any new efforts aimed at increasing the use of reverse mortgages. It reinforces the value of consumer counseling mandated by the U.S. Department of Housing and Urban Development for the popular Home Equity Conversion Mortgage reverse mortgage program.
“This report will help people approaching retirement make more informed decisions,” said Brad Dela Cruz, a reverse mortgage consultant for MetLife Bank in the West Los Angeles area. “As the study shows, in many cases, with the appropriate guidance, reverse mortgages can be an important financial option for older Americans who do not have adequate savings.”
In addition to making the study available, the Mature Market Institute is offering a free guide to help consumers better understand the terminology associated with these loans and provides answers to frequently asked questions about borrowing limits, qualifications and consumer protection, among other things. Both the full study and the guide are available at maturemarketinstitute.com under “What’s New” or by calling Dela Cruz at (310) 920-7610.
