The current economic crisis is leading many older Americans to take value out of their homes via home-equity loans or reverse mortgages. It is unclear, however, whether these homeowners are tapping their equity as part of a larger strategy or as a last resort. Tapping Home Equity in Retirement: The MetLife Study on the Changing Role of Home Equity and Reverse Mortgages, published in partnership with the National Council on Aging, urges that this important asset be managed wisely in retirement.
According to the study, 35 percent of older Americans see their homes as loan collateral as much as shelter for themselves and their families. Approximately 14 percent have taken out home-equity loans or reverse mortgages against their principal residences. The trend is seen among affluent households, who use the cash to elevate their lifestyles, as well as middle-class families, who may be resorting to taking equity out of their homes because they have no other option. According to the study, older homeowners are tapping equity to, among other things, bolster income, build emergency reserves and manage debt.
Other ways in which home equity may be used, which were investigated by the study, include delaying Social Security payments to increase the amount ultimately received, consolidating credit card debt, covering investment losses, deferring mortgage payments (in the case of reverse mortgages), meeting expenses if they outlive their retirement savings and paying for home maintenance and medical expenses.
“Our research on baby boomers indicates that they are more open than previous generations to tapping home equity and considering reverse mortgages to help fund their retirement,” explained Sandra Timmermann, Ed.D, director of the MetLife Mature Market Institute. “With the right guidance and policy protection, reverse mortgages can be an important financial option for boomers who do not have adequate savings.”
The report emphasizes that consumer education must increase to keep pace with the increasing popularity of reverse mortgages as mandated by the U.S. Department of Housing and Urban Development. To this end, the Mature Market Institute is providing a free guide, The Essentials: Reverse Mortgages, to help consumers understand the risks and benefits of home-equity loans and reverse mortgages.