Boston College: Retirees’ Home Equity is ‘Useful but Unused’

Senior homeowners who are looking for a more efficient path to bolster their cash flow in retirement are often sitting on a potentially viable source — their homes — but in many cases have found reasons not to tap the equity built up in those homes as a source for cash. This is according to the Boston College Center for Retirement Research (CRR), in a blog post published this week.

“Some want to preserve that housing wealth for their kids,” the post says. “Others don’t like the idea of cashing in on the equity if it means relocating to a smaller house or apartment or a less expensive neighborhood. They also have plenty of concerns about federally insured reverse mortgages, which are a way to extract equity but are complicated to understand.”

While recent comments from seniors help to make misgivings about equity-tapping products like reverse mortgages clear, economists are increasingly looking to home equity as a potential tool that can help to provide seniors with a necessary source of cash. At last count, seniors were sitting on over $8 trillion of home equity according to measurements from the National Reverse Mortgage Lenders Association (NRMLA) and data analytics firm RiskSpan.

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In an article from CRR which described a study demonstrating that using home equity is effective in reducing financial hardship, one commenter explained that a reverse mortgage helped provide for a relative “a roof over her head until she died at age 97,” the comment said according to the post. Now, that same commenter’s mother has gotten a reverse mortgage for herself, seeing the difference it made in the aunt’s life prior to her death.

“If she can squeeze every dime out of the little she has to have a better quality of life, I’m all for it,” the commenter said.

While a potential downside of a reverse mortgage is a need to sell the secured house and then quickly pay off the loan balance, CRR data indicates that a home sale in retirement is not a particularly likely outcome.

“Nearly three out of four older workers either don’t move out of their current home or, when they retire, they sell their house, buy a new one, and stay put, according to research featured in ‘Most Older Americans Age in their Homes,’” the post reads. “Granted, these homeowners tend to be healthier than the older people who move around more. But [former life insurance specialist] Paul Brustowicz said even retirees who have health issues want the same thing as everyone else: to age in their own homes.”

For some seniors, it simply comes down to an aversion to borrowing again after having spent years or decades paying off a traditional mortgage, the post says.

“But, again, homeowners who stay in the house don’t have to pay back the loan,” it reads. “And so the wealth – needed, but unused – remains locked up in retirees’ houses.”

Read the post at the Boston College CRR.

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