Nearly One-Fifth of Seniors Don’t Know What a Reverse Mortgage Is [UPDATED]

Just under 20% of seniors who responded to a recent survey were unaware of reverse mortgages — despite showing an overwhelming desire to stay in their homes and potentially make renovations into old age.

Among homeowners aged 60 to 70, 44% said they would keep a mortgage through retirement, according to a study on retirement and mortgage debt conducted by American Financing, an Aurora, Colo.-based mortgage consultancy. A significant portion — 16% — said they might never end up paying it off, with the largest chunk of respondents estimating that the process would take more than eight years.

Still, 19% said they did not know what a reverse mortgage was, while 63% said they believed their savings could cover renovations to their homes that would allow them to age in place.

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“Yet one question needs to be asked: How will these individuals afford to remain at home and make modifications if they run out of savings when nearly half (48%) of those surveyed reported being unsure of what they would do in the event that retirement funds ran low?” the report noted.

American Financing pointed to rising property values and home equity levels as reasons why seniors might choose to explore a reverse mortgage, and advocated for additional education among lenders about the products.

“Ultimately, reverse mortgages can present a viable option to help eligible individuals with limited income use the accumulated wealth in their homes to cover basic monthly living expenses, ensuring that their savings will last longer into retirement,” the firm pointed out.

The company isn’t the first to note lack of consumer awareness about reverse mortgages: Earlier this year, the Urban Institute released a report that blamed a variety of factors for underutilization of home equity in retirement, from misinformation about the risks and costs to the lack of name-brand banks in the marketplace.

In addition, Reverse Mortgage Funding rolled out an ad campaign that saw average consumers taking a “blind taste test” between reverse mortgages and home equity lines of credit; the focus-group participants overwhelmingly chose the Home Equity Conversion Mortgage product when they were told of its features but not its name.

Editor’s Note: Due to an editing error, an earlier version of this story incorrectly stated that only about 20% of respondents knew what a reverse mortgage was in the opening paragraph. RMD regrets the error. 

Written by Alex Spanko

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  • Alex,

    1. You have provided links to the Urban Institute report and the RMF ad but none for the American Funding report. Could you please provide that link?

    2. Also you start the article with: “Just under 20% of seniors who responded to a recent survey were aware of reverse mortgages….” Then you add: “Still, only 19% said they even knew what a reverse mortgage was….”

    Both the quotations state that less than 20% of those participating in the survey even knew what a reverse mortgage is but your headline says just the opposite: “Nearly One-Fifth of Seniors Don’t Know What a Reverse Mortgage Is.” Which is right?

    Thanking you in advance for 1. correcting either the quotations or headline and 2. adding the link.

    Jim Veale

  • In my earlier and separate comment addressed to Alex, I ask him to let us know which is right, less than 20% of seniors know what reverse mortgages are or over 80% of knows know what they are.

    If less than 20% of participating seniors knew what reverse mortgages are and the selection of the surveyed seniors was sufficiently random, shame on the industry. As Mike Banner is so famous for saying, the industry is failing the product.

    If over 80% of participating seniors knew what reverse mortgages are and again the selection of the surveyed seniors was sufficiently random, then the industry cannot rest on its laurels, but overall that is doing OK even though the industry needs to do better. 80% in school was either received a grade of a low B or a very high C.

    • Hello James,

      Considering that 36% of people cannot name the 3 branches of our government (and 35% could not even name 1), and only 27% know that it takes a 2/3rds vote of both the house and senate to over ride a Presidential veto, and that 21% of people think that a 5-4 decision of the U.S. Supreme Court is sent back to Congress to be reconsidered, I am really not surprised at the 80% statistic.

      I would bet that if you asked the 80% who knew about reverse mortgages even a little of how they worked that less than half would know. Heck, how many people still think that they are giving their house to the bank when they take out a HECM?

      Frank J. Kautz, II
      Staff Attorney

      Community Service Network, Inc.
      52 Broadway
      Stoneham, MA 02180
      (781) 438-1977
      (781) 438-6037 fax
      FrankKautz@csninc.org

      The above stats come from:
      https://www.bostonglobe.com/magazine/2015/03/28/how-many-people-know-their-senators/yfgXyHR96X7YGhesaNQbnM/story.html

      • Please, call me Frank. “Mr. Kautz” is my grandfather. 🙂

        You make some great points, but the real problem that I run into is that the average citizen is woefully uninformed about way too many things. Reverse Mortgages are just one more of those things that they are uninformed about, sometimes willfully, and sometimes, as you mention, they just answer the question in front of them with no deeper knowledge.

        Frank

      • Frank,

        Or the questioner fails to have a follow up question that validates that the questionee (British) actually has a minimum level of understanding reverse mortgages.

        Essentially we agree.

        I was testing the waters to see if originators believed what the mortgage lender is purveying. Personally I believe that less than 20% of seniors have a sufficient understanding of HECMs to forego counseling.

  • Confusing as it is, the truth as it be known, the consumer does have a major lack of understanding of what a reverse mortgage is and how it can really be a benefit to them.

    This has been the problem right along. Where does the problem lye? You can say it with those of us in the industry, are we getting out there enough to spread the word to the right people? Are we as an industry trained properly to answer the questions seniors have about reverse mortgages? And last but not least, as Jim veal quoted what Mike Banner said, “Is the industry failing the product”!

    Something to really think about?

    John A. Smaldone
    http://www.hanover-financial.com

    • John,

      This is the problem with reading what others write. American Financing, a Colorado mortgage company, is telling us that just under 20% of seniors who responded to a recent survey were unaware of reverse mortgages. Yet nothing tells us how the mortgage company reached this conclusion.

      Was it that they had a question that simply asked if the respondent knew what a reverse mortgage and those surveying went no further? Was it that the surveyors actually went into depth to assure themselves that the respondents really knew or not? Most likely it was the former.

      Have a great weekend.

  • A reverse mortgages are increasing debt, decreasing equity loan – that is what they are.

    99% of borrowers have no idea if a reverse mortgage will benefit or harm them over the long term.

    If Seniors or anyone else thinks a reverse mortgage is for seniors over 62, a safe government insured loan or anything else in those commercials they would be identifying the features of a reverse mortgage not what it is.

    We, as a community must come together to make changes to the HECM program so that is safe and suitable for consumers, sustainable and stable for the MMI Fund, and HUD must provide consistent and clear regs and documentation for all Lenders/Servicers so they don’t have to interpret what HUD wants.

    I am concerned. The program will not survive if it continues down the path of band-aid fixes.

    Sandy Jolley
    caarma.org

    • I have to disagree with your “99%” number. I am a counselor and I spend a lot of time around seniors taking these loans. They prepare budgets for me, they talk to me about their hopes, dreams, and goals. While, by no means, all of the seniors I see understand how a reverse mortgage will benefit or harm them, the vast majority do. And I do my best to make sure that they do understand, particularly those that do not understand when they come to see me.

      Counseling sessions should involve a lot of information being shared. If I have done my job correctly I can usually answer the majority of questions on the FIT & Benefits CheckUp forms. I do not, but I usually can. I also encourage people to read about reverse mortgages, talk to family and friends, as well as professionals (such as lawyers, accountants, etc.). I also look at their budgets to see if a reverse mortgage is going to be something that may work for them in the long term, or is it just a short term, temporary solution. Some people want that (even if it will cost them more than a hundred thousand dollars over a few years), but it is my job to be sure that they understand that is what they want to do.

      You will not get an argument from me that some changes need to be made, but I am not willing to toss the whole program out, or make radical changes to it such that no one in the business world will touch it. It is a compromise program and, as such, will never truly be what either businesses or consumer advocates actually want to see.

      Frank J. Kautz, II
      Staff Attorney

      Community Service Network, Inc.
      52 Broadway
      Stoneham, MA 02180
      (781) 438-1977
      (781) 438-6037 fax
      FrankKautz@csninc.org

  • Reverse mortgages are increasing debt, decreasing equity loan – that is what they are.

    99% of borrowers have no idea if a reverse mortgage will benefit or harm them over the long term.

    If Seniors or anyone else thinks a reverse mortgage is for seniors over 62, a safe government insured loan or anything else in those commercials they would be identifying the features of a reverse mortgage not what it is.

    We, as a community must come together to make changes to the HECM program so that is safe and suitable for consumers, sustainable and stable for the MMI Fund, and HUD must provide consistent and clear regs and documentation for all Lenders/Servicers so they don’t have to interpret what HUD wants.

    I am concerned. The program will not survive if it continues down the path of band-aid fixes.

    Sandy Jolley
    caarma.org

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