Many retirees will be able to tap their home equity for income, according to data from the 2013 Federal Reserve’s Survey of Consumer Finances.
In 2013, 77% of households in their early 60s owned a house, and the median house price was $185,000, data show.
“But 63% of households in their early 60s continued to have a mortgage,” writes Alicia H. Munnell in a recent MarketWatch article. “Subtracting outstanding mortgage balances from the gross house price yields median home equity of $110,000, which accounts for more than 40% of the homeowners’ total wealth as conventionally measured.”
The importance of home equity over most of the income distribution shows that it could provide an “important source of income in retirement,” she says, noting that one key way to tap that equity is through a reverse mortgage.
A reverse mortgage offers a way for those 62 and older to stay in their home, she explains, adding that people with a conventional mortgage can qualify for a reverse mortgage as well. However, they must use those funds from the reverse to first pay off their mortgage.
“Eliminating mortgage payments substantially reduces the demands on their monthly income,” she says. “But the increase in households 60-65 with a mortgage on their home – from 53% in 1989 to 64% today – is a concerning trend.”
Munnell is the director of the Center for Retirement Research at Boston College.
Read the MarketWatch article here.
Written by Cassandra Dowell