Older Americans are actively concerned about the deterioration of their quality of life as they get older, which has led to more seniors’ general receptivity to less conventional cash flow options including reverse mortgages. With the favorable interest rate environment that the mortgage industry currently finds itself in, some seniors who are aware of reverse mortgages may find themselves more seriously contemplating whether such a loan is right for them.
This is according to a new column published by Forbes and Next Avenue this month.
“The numbers are worrisome,” the column reads. “The typical 54- to 64-year-old with a 401(k) or IRA owns a median portfolio worth about $135,000 and more than a quarter of workers don’t have retirement savings accounts (mainly because their employer doesn’t offer one). Is it any surprise older Americans worry their quality of life could deteriorate during retirement?”
By that same token, the homeownership rate for households age 65 and older is at 81%, indicating that many of those older homeowners may have access to more home equity than they may have cash that is saved or on-hand. When asking whether or not such an arrangement may be worth exploring, one expert said that it is worthy of consideration.
“For many retirees, home equity represents a significant portion of their wealth,” Shai Akabas, director of economic policy at the Bipartisan Policy Center think tank, said at a Senate Health, Education, Labor and Pensions Committee hearing last spring. “Many of these older Americans can — and will have to — rely on home equity to supplement their Social Security benefits.”
Akabas elaborated on his perspectives on home equity release in an interview with RMD earlier this year, but the underlying thesis remains in which home equity extraction or conversion is underused due to both a lack of broad awareness, as well as certain stigmas that the reverse mortgage industry contends with.
However, many seniors remain unconvinced about the potential prospects of a reverse mortgage due to some lingering reputational issues which proliferated well before the product – particularly the Home Equity Conversion Mortgage (HECM) as sponsored by the Federal Housing Administration (FHA) – was molded into its current form through legislation and new regulations.
“The reverse mortgage business has cleaned itself up quite a bit following bad press and Congressional initiatives in the 1980s,” the column reads. “Still, scholars find homeowners aren’t convinced that a reverse mortgage is the way to turn home equity into income. […] Many older homeowners prefer to leave their home equity alone as long-term insurance against unexpected expenses like health costs, and instead take out a home equity credit line as needed.”
A desire on the part of many seniors to leave their homes as a bequest asset is also very powerful, and does not combine well for industry prospects considering the complexity of the reverse mortgage product, the column says.
Read the column at Forbes.