In today’s economy, more and more senior homeowners are looking for new sources of retirement income. Many are looking to their home equity as an option to supplement other income sources. A new report from The MetLife Mature Market Institute looks at different strategies for coping with financial shortfalls later in life.
Tapping Home Equity in Retirement was released jointly with the National Council on Aging and found that 35% of older Americans see their homes not just as secure places to live, but also as collateral for a loan. About 14% are taking cash out of their house through a home equity loan or reverse mortgage. “Tapping home equity in a timely and appropriate way can keep small budget shortfalls from becoming overwhelming problems,” said Barbara R. Stucki, Ph.D., director of the Reverse Mortgage Initiative for NCOA.
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. Borrowers only pay the amount they use from the loan.
Solving everyday financial problems is becoming increasingly complex and difficult in later life. Although there are still many unanswered questions, the financial services industry, policymakers, and consumer advocates complacent about the potential benefits and risks of using this asset to address the challenges facing older Americans.
