Data Shows Seniors Looking At Reverse Mortgages To Offset Investment Losses

image Golden Gateway Financial released new data from its online reverse mortgage calculator which shows that more seniors are researching reverse mortgages to offset investment losses.

"For many older Americans, the time to act to stave off continuing losses is now," said Eric Bachman, founder and CEO of Golden Gateway Financial. "Retirees who are unable to tap their investments or even return to work are turning to their home as their last line of defense, only to find its value is greatly diminished. This economy is effectively rewriting the financial rules of retirement."

According to the press release, data from the calculator shows that over the course of 2008 borrowers underwent a fundamental shift in how they viewed reverse mortgages as a retirement finance vehicle.  A growing number of borrowers with no existing mortgage are considering a reverse mortgage to help offset investment losses or to buy time for their portfolios to recover.

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Additional observations from the data include:

  • Age and other determining factors remained roughly consistent, while home values continue to drop by 6.9% on a national average and as much as 31% in California
  • On average, borrowers could have earned approximately $134,000 in up-front proceeds in 2008 from a reverse mortgage, with California borrowers   potentially earning the most at more than $195,000
  • The national average for percent of loan to home value (LTV) for those who held a forward mortgage was slightly more than a third at 36%
Reverse Mortgage Calculator National Averages
Q1 ’08 Q2 ’08 Q3 ’08 Q4 ’08
Average Age 68.6 69.5 69.7 69.2
Average home value $449,200 $438,461 $428,786 $412, 627
Percent with existing mortgage 51.40% 53.40% 53.80% 46.10%
Average existing mortgage debt $157,575 $159,700 $146,217 $149,683

In addition to its own calculator data, Golden Gateway Financial measured the impact of home price changes over the course of the calendar year 2008 as provided in the most recent S&P/Case-Shiller Home Prices Indices on older Americans. Tracking home price changes from the beginning of the first quarter 2008 to the end of the fourth quarter 2008 shows a steep drop-off in value for many of the top real estate markets. For example, once vibrant markets like Phoenix, Las Vegas, and San Francisco are down more than thirty percent from the first quarter of 2008.

For older Americans considering tapping their home equity to help fund their retirement, a drop in home value corresponds to a similar loss in cash available through a reverse mortgage. Those potential borrowers already hurt by investment or job loss should consider locking in their home value now in order to avoid future declines in available equity.

"For these borrowers it makes sense to avoid selling stocks or other assets at or close to the bottom when a reverse mortgage allows them to participate in the potential upside of a rebound in property values," continued Mr. Bachman.

The table below shows how the drop in average home value as determined by the S&P/Case-Shiller Indices impacts the amount of money available through a reverse mortgage in sample markets. All numbers are based on an initial home value of $200,000, and calculations were analyzed on March 10, 2009.

  One Year Change in Home Price Index Age Q1 2008 Upfront Cash Available Q4 2008 Upfront Cash Available Reduction in Cash Available
National Average -18.20% 78-79 $136,777 $110,642 ($26,135)
Atlanta -12.10% 78-79 $136,777 $121,084 ($15,693)
Detroit -21.70% 78-79 $136,777 $107,126 ($29,651)
Las Vegas -33.00% 78-79 $136,777 $90,695 ($46,082)
New York -9.20% 78-79 $136,777 $125,301 ($11,476)
Phoenix -34.00% 78-79 $136,777 $89,241 ($47,536)
San Francisco -31.20% 78-79 $136,777 $93,313 ($43,464)

New Report Shows that as Economy Weakens the Makeup of Seniors Evaluating Reverse Mortgages Changes

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  • I just read about this same information based on a Federal Reserve Study released on March 14th. That information is featured on one of the reverse mortgage info blogroll sites mentioned on the bottom right of this very website and it refers to the very report that reported those statistics.

  • As a seminar presenter for South Central Bank at Senior Centers in the Chicago area I can confirm the interest in using a reverse mortgage as a safety net for their depleted retirement accounts. Last year before the stock market tanked theonly interest was from those that were in deep financial trouble. Now I am getting interest from just about all seniors.

  • For the first time in the 5 years I’ve been originating Reverses, I have 4 homeowners with shortfalls and they’re doing whatever it takes to satisfy the shortfalls. The stock market crunch has hit them extremely hard and they’re selling their stock assets to enable a Reverse to happen before their homes decline more in value. Folks are really hurting right now.

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