Reverse mortgage may not be the most practical retirement solution for everybody, but they are important for many retirees to consider today, says one personal finance columnist.
The most recent financial crisis left an everlasting impact on the trillions of dollars Americans held in home equity since the housing market boom and bust of the last decade. But as home values have been recovering over the years, the return of housing wealth warrants serious consideration for reverse mortgages among retirees and pre-retirees, suggests columnist Scott Burns in a recent article published by the San Antonio Express-News.
“Homeownership may not be the entire ballgame, but it accounts for most of the innings,” Burns writes. “Slice the figures any way you like, and the action is still in homeownership. And home equity is where the vast majority of working and near-retirement Americans have the bulk of their net worth.”
Burns’ article is a follow-up to a previous column he recently published detailing how to buy a new home with 50% down and never having to make a mortgage payment. The article, which spotlighted the capabilities of the Home Equity Conversion Mortgage for Purchase product, spurred outcry from readers “questioning [Burns’] sanity.”
“Some thought the whole thing was some kind of trick,” Burns writes in his most recent column. “Others knew someone who had taken out a reverse mortgage and lost their home. There’s a lot of distrust out there for a tool that seems ‘too good to be true.'”
The reality, he writes, is Americans have a massive stockpile of home equity, which has since returned to pre-crisis levels.
At the end of 2015, Americans owned an aggregate $22 trillion worth of home equity—the same amount as they did in 2005, the year before the housing bubble broke, according to the most recent Federal Reserve Flow of Funds report. This total home equity value stacks up against mortgages of $9.4 trillion, leaving homeowner equity at $12.6 trillion, an increase of $6 trillion from the 2011 market low.
“Whether you measure the total or the increase, it’s a lot of money,” Burns writes.
But for those who were already retired or just retiring at the beginning of the meltdown, millions of people lost half of their savings and “parked what remained in cash.”
“They missed the market recovery,” he writes. “That’s another reason the biggest pool of money most Americans have to help pay the bills during their retirement is their home equity.”
Reverse mortgages will be important for many, Burns says, because they allow people to access their housing wealth, which they can use to shore-up shortfalls in personal savings.
“Today, most workers don’t have pensions,” he writes. “Many have managed to save only a small amount of money. Still others saw a large amount of savings become a small amount. For all these people, home equity may be the difference between a comfortable retirement and a miserable one.”
Burns then goes on record to say that he predicts the U.S. is just entering the “Age of Reverse Mortgages.”
“You can use one [reverse mortgage] to provide lifetime income and stay in your house until you die,” he writes. “You can sell your home and use some of the proceeds to buy another and never make a mortgage payment, even as you create a fund of cash to invest. Whatever you do, you will increase your retirement standard of living in a measured and predictable way.”
Read Burns’ column.
Written by Jason Oliva