Home Equity, If Used, Offers Big Boost to Retirees’ Income

If converted to income, untapped home equity for seniors in the United States and 10 European countries could make for a significant supplement to retirement income, according to data released by the Urban Institute and highlighted in a blog post at the Boston College Center for Retirement Research (BCCRR).

“The typical retired U.S. household has the potential to increase its retirement income by 35 percent,” the blog post writes, based on research conducted by Stipica Mudrazija and Barbara Butrica of the Urban Institute. “In Europe, using home equity would add anywhere from 19 percent in Sweden to 100 percent in Spain,” the blog posts says.

Still, the question of whether or not a home equity conversion product – reverse mortgage or otherwise – would actually be put into practice is an entirely different matter, since financial products designed for the purpose of converting home equity into income are rarely used.

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Typical barriers to wider use of home equity conversion in the United States and Europe include high cost of the products themselves, consumers’ general aversion to taking on more debt, and homeowners’ strong desires to leave some form of inheritance to surviving heirs. The lack of accessibility for home equity products to lower-income seniors also presents an issue, since the research notes that homeownership is concentrated among middle-income and high-income retirees.

“The researchers conclude that while converting home equity could be an important option for increasing income, it currently has only a limited role in supporting old age security,” the blog post says.

For more in-depth information on the study, read the full paper.

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