For many, 2020 proved to be a difficult year, but there was a bright spot for senior homeowners. Senior housing wealth has continued to grow and reached a record $7.82 trillion in 2020, which was primarily driven by an increase in home values.1 With this record growth, seniors may be wondering how they can utilize their housing wealth.
What is Home Equity?
Home equity is the difference between what you owe on your mortgage and what your home is currently worth. For example, if you owe $100,000 on your mortgage and your home is worth $250,00, this means you have $150,000 of home equity.
Equity can grow in two ways: 1) the amount of equity in your home will rise as you pay down your mortgage and 2) the amount of equity will increase if the value of your home goes up.
It is important to note that the equity in your home can also decrease. It is possible your home’s value may fall at a rate faster than the pace at which you’re paying down your mortgage’s principal balance.
Using a Reverse Mortgage to Access Home Equity
A reverse mortgage allows qualified homeowners, who are 62 or older, access a portion of their home equity as cash which can be used to help supplement retirement income, home renovations, or daily living expenses. Reverse mortgage borrowers do not have to repay the loan as long as they live in the home as their primary residence, pay property taxes and insurance, and maintain the property.3
Borrowers can receive the available equity from their reverse mortgage as a lump sum4, monthly installments, or a line of credit.5 The lump-sum payment can be a good option if you want to pay down other debts or make improvements to your home. Receiving monthly installments can help cover ongoing expenses and alleviate stress regarding monthly cash flow. A line of credit may make sense for an emergency fund because it is available anytime you need it. An added benefit of the line of credit is that if your home value increases over time, so will the amount available to you.6
Are you interested in accessing your home’s equity with a reverse mortgage? Call (800) 976-6211 to speak with a licensed reverse mortgage specialist to find out how much you may qualify for.
2 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.
3 Only available on fixed rate reverse mortgage.
4 The funds available to the borrower may be restricted for the first 12 months after loan closing, due to HECM reverse mortgage requirements. In addition, the borrower may need to set aside additional funds from the loan proceeds to pay for taxes and insurance.
5 The reverse mortgage loan balance grows at the same rate as the available line of credit. Line of credit growth occurs and is only a benefit when a portion of the line of credit is not used. The unused line of credit grows over time and more funds become available during the life of the loan.