Reverse mortgages can serve a variety of needs for the borrowers who use them. While some motivations to obtain these loans are more obvious than others, borrowers report high satisfaction overall when it comes to using a reverse mortgage to foster independence and improve well-being, according to the results of a recent survey.
A wide majority (83%) of seniors who received Home Equity Conversion Mortgage (HECM) counseling and decided to follow through with a reverse mortgage said they were “satisfied” or “very satisfied” with their decision, according to a survey conducted by researchers from Ohio State University, and funded by the MacArthur Foundation and the Department of Housing and Urban Development (HUD).
The survey,” Aging in Place: Analyzing the Use of Reverse Mortgages to Preserve Independent Living,” combined HUD loan data; administrative data from households who received HECM counseling, as well as survey data collected on these households three to nine years after receiving counseling for a reverse mortgage.
Researchers’ goal was to gain a better understanding of reverse mortgages and their impact on borrowers’ financial security, well-being and independence in old age.
To explore these relationships, Ohio State researchers Stephanie Moulton, Donald Haurin, Cazilia Loibl and J. Michael Collins analyzed seniors who received HECM counseling from ClearPoint Credit Counseling Solutions between 2006-2011. This population included seniors who obtained a reverse mortgage and retained it; those who took a reverse mortgage and then later terminated it; and those who decided not to take a reverse mortgage after receiving counseling.
In total, 1,761 people participated in the survey. Of this population, 68% obtained and retained their reverse mortgage; 6% obtained a reverse mortgage and then later terminated the loan; and nearly one-quarter of respondents decided against getting a reverse mortgage altogether after completing HECM counseling.
The average age of survey participants was 70 years old at the time they received counseling. Approximately one-third of them were women living in single-person households, and 17% had a four-year college degree.
While a majority of respondents expressed satisfaction with their reverse mortgages, even those who eventually terminated their HECMs (78%) also felt “satisfied” or “very satisfied.” Meanwhile, among those who decided against getting a reverse mortgage, 60% reported satisfaction with their decision to not follow through with a HECM.
When researchers asked survey participants the extent to which they agreed with the statement, “Having a reverse mortgage improved the quality of my life,” 76% of active borrowers and 65% of terminated borrowers agreed with the statement.
On average, the annual income of participants was about $31,000, or $2,600 per month. Besides home equity, the median amount of assets among this group was only $2,000. Just under half of respondents (45%) reported no assets at the time of HECM counseling other than their home, effectively making the reverse mortgage their only source of wealth.
Supplementing income (42%) and paying off other mortgage debt (39%) were the top intended uses for seniors who obtained a HECM. Other plans included using a reverse mortgage to pay for home improvements (24%), provide financial help for family members (19%), to delay using other sources of retirement wealth (16%) and to pay for ongoing health expenses (14%).
Although there has been a lot of discussion about using a reverse mortgage line of credit to lock-in home equity as an insurance against declining home values, only 10% of survey respondents reported using a HECM in this regard. Just 6% said they planned to use a reverse mortgage for big purchases such as a new property, a car or vacation.
Aside from gauging borrower satisfaction, a critical part of the research aims to study the impact of reverse mortgages on long-term financial stability and well-being. This, according to researchers, will require longer-term tracking of borrowers to estimate the outcomes of households who obtained reverse mortgages compared to those who did not.
One indicator of household well-being is the condition of living environment. Based on the survey results, many (85%) active reverse mortgage borrowers report the condition of their home is “good” or “very good.” Similarly, 81% of terminated loan borrowers and 76% of non-borrowers rated their living conditions at the same levels.
Although all groups of HECM borrowers report high satisfaction with their home conditions, the data indicates that active HECM borrowers have higher levels of satisfaction than their survey peers. While this could be due to a direct effect of the reverse mortgage, researchers suggest it could also be that homeowners who opt into a reverse mortgage have homes that are in good condition prior to getting a loan. This suggests further detailed analysis is needed.
In order to gauge the impact of HECMs on factors of well-being, researchers say they need to establish a comparison group of otherwise similar seniors who did not originate a HECM. Two future studies from the Ohio State University researchers plan to address this area of study.
First, researchers note they will be comparing the long-term credit outcomes for seniors who originated HECMs to similar seniors who extracted equity through another channel, such as a HELOC, cash-out refinancing or second liens. Second, researchers plan to compare its survey respondents to a nationally representative sample of seniors, in efforts to compare HECM borrowers to non-borrowers in the areas of finances, health, housing and general well-being.
These analyses, which are currently in process, are slated for completion by August 2016.
View the survey results.
Written by Jason Oliva