“Tap into your home equity and retire happy and satisfied!”
Sound familiar? It should. Chances are that some of your advisors are touting reverse mortgages as a panacea to the widening consumer savings gap. But before you leave skid marks on the pavement as you race to offer this advice, let’s look at what the facts suggest. It’s all about suitability.
According to the 2006 Retirement Confidence Survey, 53 percent of all Americans have saved less than $25,000 to fund the second half of their lives. While these numbers are disturbing, Americans have a significant untapped financial asset that can be utilized to achieve financial security — their home. This situation creates an enormously appealing opportunity for finance companies looking to “help” the consumer while they concurrently “help” themselves to large fees.
The argument is appealing: the American dream has always embraced the concept of home ownership. Yet few Americans stop to consider how much of their personal wealth is tied up in their home. A 2004 survey of consumer finances conducted by the U.S. Board of Governors of the Federal Reserve System reveals that 21 percent of the wealth holdings of a typical household are tied up in the primary residence. On average this represents more than $125,000. But with declining real estate values and subprime lending concerns added to the mix, a reverse mortgage, given these dynamics, may not be appropriate for most.
Because the economic markets are volatile, many investors may seek to”cash in” before the market erodes further. Investors should carefully consider their options. It may be better for some to wait out the current real estate mess and instead focus on managing their liquid assets as part of a more stable and balance investment portfolio.