The number of cash-strapped Baby Boomers age 62 to 64 taking out reverse mortgages has tripled since 1999, sharply lowering the average age of potential borrowers, according to a study released Wednesday by the MetLife Mature Market Institute.
The age of people seeking U.S. Department of Housing and Urban Development home equity conversion mortgages (HECM), more popularly known as reverse mortgages, has plummeted in the four years since the collapse of the U.S. housing market, according to the MetLife study, Changing Attitudes, Changing Motives: The MetLife Study of How Aging Homeowners Use Reverse Mortgages, produced in conjunction with the National Council on Aging.
The percentage of prospective borrowers who are 62- to 64-years-old has increased to 21%, from 6%, since 1999, despite the fact that younger applicants have had lower available loan limits, the study says. The largest age group of potential borrowers in the study is 65-69, representing 28%, which has risen eight points. In 1999, the biggest group was 70-74 year olds, which were 28% of the total, they now account for just 21%. Overall, the average age of those who have gone through reverse mortgage counseling has declined and is now 71.5 years of age, and HUD also reports a similar decline in the average age of actual borrowers to age 73. Forty-six percent of homeowners considering a reverse mortgage are now under age 70.
Barbara Stucki, vice president for home equity initiatives for the National Council on Aging, said that there is a good chance home equity will evolve from being an emergency measure to one that is part of a strategic retirement plan.
"While the economic downturn may be a major reason borrowers have begun to use this financial option for debt management, in the future it is likely that tapping home equity will be viewed as part of the entire retirement planning process,” Stucki said in a statement. “It is likely the reverse mortgage option will be considered alongside some of the more traditional methods of saving and investment."
Boomers age 62 to 64 currently represent one in five prospective borrowers of the product, which has traditionally been associated with a much older age group. According to FHA guidelines, homeowners must be 62 years of age or older to be eligible for a HECM mortgage. In addition, they must own their home outright or have a low mortgage balance that can be paid off at closing with proceeds from the reverse mortgage.
"Consumer attitudes about reverse mortgages are changing because the recession has eroded confidence about retirement security, and Americans will rely more and more on these measures," said Sandra Timmermann, director of the MetLife Mature Market Institute, in a statement.
Data for the study was collected by HUD-approved counselors as part of mandatory counseling for all reverse mortgage applicants. Between September and November 2010, counselors completed 21,240 of these counseling sessions.
The report provides information for consumers and financial advisors, including an explanation of loan types and why a fixed-rate HECM can be more costly and potentially offer less flexibility than an adjustable-rate mortgage HECM loan.
Read Reconsidering Reverse Mortgages at AdvisorOne.com.