The reverse mortgage borrower of today is getting younger, and the age may be declining even further as a result of the financial stresses of the past four years, according to a study released this week by MetLife’s Mature Market Institute.
This new group of borrowers is also using the reverse mortgage in a new way: to lower household debt, rather than to enhance lifestyle, as was more common in the past. Further, due to declining home values, an increasing number of borrowers can’t qualify, according to data compiled by the National Council on Aging and Metlife.
The study, based on Department of Housing and Urban Development reverse mortgage counseling data collected between September and November 2010, using NCOA’s FIT tool, shows the average borrower is about 73 years old today, but the average age of those who went through counseling was even younger—at 71.5.
Borrowers are getting younger at the same time relative costs of taking a reverse mortgage have increased, MetLife reports, noting that for about 32% of counseling clients, their existing mortgage may exceed 50% of the value of their home and they may not have enough equity to qualify.
“The higher relative cost of these loans at younger ages suggests that there must be other factors that account for the influx of homeowners under age 70 who are interested in, or taking out reverse mortgages,” the report states.
Boomers are willing to take on more debt to fund major purchases today, as senior households increased debt between 2004 and 2007. They may also have overextended themselves financially, leading to the need to tap into home equity sooner.
“Several years ago, many older homeowners took out this loan as a way to enhance their quality of life,” the report says. “But now, people who consider these loans are more concerned about urgent financial needs, including lowering debt…. For older homeowners with sizable debt, a reverse mortgage may be the only way they can retire. This strategy, however, can also increase financial risks if borrowers do not manage their spending or rapidly draw down their home equity.”
With common reverse mortgage needs changing, the average borrower may be shifting, according to MetLife and NCOA, back toward meeting immediate cash needs.
“Among HECM counseling clients in 2010, only 27% were considering a reverse mortgage to enhance their lifestyle,” the report says. “Even fewer (23%) saw the need to plan for the future as a reason to take out this type of loan. Instead, most of these homeowners wanted to lower household debt.”
View the full report.
Written by Elizabeth Ecker