Baby Boomers and senior homeowners have the potential to reshape the nation’s housing market. But as a growing share of this demographic carries mortgage debt into retirement, they will need to seek additional solutions to improve their financial situations. For many, this could mean tapping into home equity through a reverse mortgage, according to a new report from the Department of Housing and Urban Development.
The broader housing market has shown positive signs of recovery in the years following the financial crisis, but several challenges remain, especially for older homeowners nearing retirement, according to a report recently issued by HUD’s Office of Policy Development and Research.
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A rising percentage of older homeowners are carrying mortgage debt as they approach and enter retirement. Among owners aged 65 and older, 40% had mortgages in 2014, according to the Joint Center for Housing Studies of Harvard University.
The implications of carrying housing debt into retirement years are severe. Not only may these homeowners have to postpone retirement or make difficult decisions regarding lifestyle spending on food, medical care and other expenses, but carrying debt also weakens their ability to draw on home equity to supplement their income as they age.
Refinancing options and reverse mortgages, HUD writes, may be appropriate for some older homeowners with mortgage debt, and financial counseling and assistance programs can provide help to those facing financial hardship.
“Older homeowners might draw on their home’s equity to fund modifications that allow them to age in place, help pay for their children’s or grandchildren’s education, or pay medical expenses—and as long as they have the resources to make loan payments, they can reasonably carry mortgage debt,” HUD writes.
The Home Equity Conversion Mortgage (HECM) enables homeowners age 62 and older to convert their home equity into tangible funds that can be used to pay a variety of living expenses, including paying off existing mortgage debt.
But although HECMs have undergone substantial changes in recent years that have made them safer products for borrowers, not many eligible homeowners are aware of these new updates, let alone know how a reverse mortgage could supplement their retirement.
“The HECM program currently serves a relatively small number of older homeowners, but many more households could potentially benefit from the program,” HUD writes. “Although FHA endorsed fewer than 1 million HECM loans between 1989 and 2015, HECM may be an effective option for some seniors looking to access their home equity.”
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