For senior homeowners who have accrued home equity, a reverse mortgage provides access to cash. Plain and simple. There are a range of reasons why a homeowner might want to access the money in their home. However, real estate is not typically a liquid asset. You cannot simply sell your home to access the funds, because you still need a place to live. For that reason, homes are generally not the first thing that comes to mind when thinking of ways to fund retirement.
While Social Security and retirement savings accounts are generally the first thing that comes to mind when planning for retirement, home equity is often overlooked. Considering that home equity is generally the largest source of wealth for senior households, that money can go a long way towards funding a more comfortable retirement.
For example, a household with plenty of retirement savings may still desire to access the equity in their homes in order to help family members or perhaps fund community service. Someone with just enough savings to get by may choose to access their home equity so they can spend more time visiting with family or loved ones. And of course, when retirement savings will not cover all necessary expenses, home equity can provide a lifeline to fund medical expenses or other bills.
In his recent research brief “Is Home Equity an Underutilized Retirement Asset?” Steven Sass, research economist at the Center for Retirement Research at Boston College, concluded that “households entering retirement will increasingly need to tap their financial assets and home equity to maintain their living standards.”1 He points to the fact that for four out of five senior households age 65-69, the majority of their financial wealth is in their homes.
Although there is a large discrepancy between the wealth distributions of the fifth quintile versus the first, there is a need or desire to access home equity from all demographics. The key is in understanding what individual needs are.
While there are many products that feature the ability to tap into home equity, the terms for repayment can be an obstacle. Often times they require monthly payments and have limitations on the length of time the money can be borrowed before being repaid.
A Home Equity Conversion Mortgage or “reverse mortgage” is specifically designed for senior homeowners looking to tap into the equity in their homes and even eliminate their monthly mortgage payments2. It is a non-recourse loan and is insured by the Federal Housing Administration3. When compared to other options for accessing home equity, a reverse mortgage can be an attractive option.
Depending on each individual’s financial needs and goals, there are different reverse mortgage options that may be more or less suited for them. It is best to speak with a licensed advisor to make sure you get matched with the right product to suit your needs. To see how much you may qualify for, visit our Reverse Mortgage Calculator or, call 800-976-6211 to speak to a licensed advisor for a free loan analysis.
1 Is Home Equity An Underutilized Retirement Asset? – Center for Retirement Research at Boston College, by Steven A. Sass, March 2017, Number 17-6.
2 You must live in the home as your primary residence, continue to pay required property taxes and homeowners insurance, and maintain the home according to Federal Housing Administration requirements. Failing to meet these requirements can trigger a loan default that results in foreclosure.
3 Federal Housing Administration (FHA) mortgage insurance premiums (MIP) will accrue on your loan balance. You will be charged an initial MIP at closing. The initial MIP will be .5% or 2.5%, depending on your disbursements. Over the life of the loan, you will be charged an annual MIP that equals 1.25% of the outstanding mortgage balance.