Tuesday, June 30, 2009

Older Boomers Have a Lot of Home Equity

It looks like most older boomers have a lot of wealth stored in their homes and are mortgage-free. Now, these home owners are looking for ways to tap that wealth and use it for aging in place. I've pasted the entire article below.

The research was publish by the Center for Media Research. I found it fascinating and so different from what I'm reading about the younger generations.

Here is a link to the MetLife Mature Market study:
http://www.metlife.com/assets/cao/mmi/publications/studies/mmi-tapping-home-equity-retirement.pdf

Boomers Leveraging Home Equity For Retirementuesday, June 30, 2009

Boomers Leveraging Home Equity For Retirement

The Study on the Changing Role of Home Equity and Reverse Mortgages, by the MetLife Mature Market Institute, finds that growing numbers of older homeowners are starting to tap their housing wealth, using home-equity loans or reverse mortgages. However, they are often unsure about how to include this asset as an integral part of their financial strategy, rather than as a last resort.

Mortgage Status Among Homeowner Households Age 62 and Older

Status

% of Homeowner HH

Regular mortgage

21.5%

Regular mortgage plus home equity loan

4.8

Home equity loan only

8.5

Reverse mortgage

0.7

No home loan

64.5

Source: American Housing Survey, 2007

Sandra Timmermann, Ed.D, director of the MetLife Mature Market Institute, said "... Retirees need a new framework for thinking about how home equity can help assure their financial security and enable them to age in place without fear of running out of money."

The study finds that 35% of older Americans see their homes not just as places to live, but also as collateral for a loan. 14% are taking cash out of their house through a home equity loan or reverse mortgage. Older homeowners are using home equity to increase income security, enhance financial resilience to deal with unexpected expenses, and to improve debt management, among other things

This is a growing reality for affluent households who seek to enhance their lifestyle, as well as middle-income families for whom it may be their only choice.

Attributes of Homeowner Households Age 62 and Older, by Wealth Status


Affluent

Middle Income

Poor


House-rich and cash-rich

House-rich or cash-rich

Moderate wealth

House-rich and cash-poor

House-poor and cash-poor

Median Household Values

Age of householder

69

70

73

76

76

Home value

$409,000

$175,000

$125,000

$350,000

$65,000

Household income

$81,900

$49,800

$25,324

$12,468

$12,000

Other Household Demographics

Married

75.9%

64.9%

48.0%

27.3%

22.7%

Has a college education

55.2%

34.1%

15.6%

20.7%

8.3%

Householder worked last week

32.6%

24.8%

12.5%

5.7%

5.5%

No mortgage

48.1%

59.7%

71.6%

70.8%

79.3%

Total

Homeowner households age 62+

4,353,625

6,449,825

6,562,602

1,037,121

3,348,454

% of total households (21.75 million)

20.0%

29.7%

30.2%

4.8%

15.4%

Source: National Council on Aging (NCOA) calculations based on data from the American Housing Survey, 2007.

The study highlights different options for using home equity that are not part of the current national conversation. These include:

  • The use of reverse mortgages to delay the age at which one might begin to collect Social Security, thus increasing the amount of one's ultimate monthly Social Security income
  • Reverse mortgages as a stopgap measure to consolidate credit card debt, to cover investment losses or to defer mortgage payments
  • Periodic distributions that would tap home equity to help people meet expenses if they outlive their savings/retirement income
  • Programs that combine public benefits with modest amounts drawn from home equity to help seniors stay at home
  • Home equity lines of credit for emergency spending, such as home maintenance, without which many homes decay and lose value
  • Reverse mortgages with a line of credit option for borrowers to pay out-of-pocket health and home care expenses.

"With the right guidance and policy protection, reverse mortgages can be an important financial option for Boomers who do not have adequate savings." said Timmermann. The report emphasizes that consumer education must be part of any new efforts aimed at increasing the use of reverse mortgages.

The full study, Tapping Home Equity in Retirement: The MetLife Study on the Changing Role of Home Equity and Reverse Mortgages, and The Essentials: Reverse Mortgages, are available here under "What's New."

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