Home Equity as Retirement Nest-Egg Eroded by Mortgage Debt

The usage of home equity as a retirement nest egg is being threatened by rising mortgage debt among senior households, finds a recent study.

The number of 65-and-older households is projected to increase by 9.8 million in the next ten years, according to the Joint Center for Housing Studies of Harvard University’s State of the Nation’s Housing 2013 report.

“Most of these households will opt to age in place and may therefore need to modify their homes to accommodate their changing needs,” write the report’s authors.

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Seniors were the only age group to avoid declines in homeownership between 2005 and 2012, the researchers found, increasing slightly from 2011 to 2012 to 81.1%. But despite comparatively high homeownership rates, loan-to-value ratios are worsening.

“Home equity can accumulate into a substantial nest-egg for retirement, helping to reduce housing costs and providing a resource to meet high medical costs near the end of life,” write the report’s authors. “However, older Americans are carrying more mortgage debt later into life, potentially eroding the benefits of long-term 
ownership.”

The change has been stark between 1989 to 2010, when the share of homeowners aged 60-69 with mortgage debt nearly doubled from 32% to 60%, according to the study.

Still, home equity plays a large role in older households’ overall net worth, which was a median $272,700 as of 2010. Homeowners aged 65 and older had a median cash savings of $11,400, compared to $125,000 in median home equity—the highest of any age group. 

Access the State of the Nation’s Housing 2013 report.

Written by Alyssa Gerace

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