Aging News Alert

Younger Borrowers Spurring More Demand for Reverse Mortgages

 

A comprehensive new study from the MetLife Mature Market Institute shows the age of those seeking Home Equity Conversion Mortgages (HECM ) -- commonly known as reverse mortgages -- has plummeted in the four years since the collapse of the U.S. housing market.

The study's authors also say these mortgages (i.e., special types of home loans that allow people to draw on home equity without monthly mortgage repayments) have evolved into a way for many older Baby Boomers to deal with pressing, if not downright urgent, financial needs.

As things now stand, boomers age 62-64 represent about 20% of HECM borrowers. The federally-backed lending product was once associated with a much older age group.

 A Cooperative Effort with NCOA

The study, titled Changing Attitudes, Changing Motives: The MetLife Study of How Aging Homeowners Use Reverse Mortgages, was produced in conjunction with the National Council on Aging (NCOA). It shows that the average age of those who have gone through reverse mortgage counseling has declined and is now 71.5 years of age.

The Department of Housing & Urban Development (HUD) reports a similar decline in the average age of borrowers to age 73.

Forty-six percent of homeowners considering a reverse mortgage are under age 70. The percentage of 62- to 64-year-olds who are prospective borrowers has increased 15 percentage points since 1999, even though younger applicants have had lower available loan limits.

More Consumer Education Needed

The study concludes that older homeowners will need assistance and consumer education to ensure they make wise decisions about the most appropriate use of their home equity "nest egg." To that end, a consumer guide, titled The Essentials: Reverse Mortgages, accompanies the study and is available free to the public. It is aimed at helping potential borrowers learn more about the product and its implications for their finances.

How They Found the Data -- What was Learned  

Data for the study were collected by HUD-approved counselors as part of mandatory counseling for all reverse mortgage applicants. Between September and November 2010, counselors completed 21,240 of these counseling sessions.

About two-thirds (67%) of recent counseling clients also have a conventional mortgage that will need to be repaid if they decide to take out a reverse mortgage, the study found. About one in four (27%) reported having both housing and non-housing debt. Borrowers with sizable existing debt may rapidly deplete home equity.  

The report provides the following information for consumers, financial advisors and others counseling older Americans.  

  • Loan Types - Potential borrowers need to understand the pros and cons of loan options, features and costs for their personal financial situation. With recent changes, including lower loan limits, the introduction of a fixed-rate HECM, and a new loan option ("HECM Saver"), reverse mortgages are no longer a one-size-fits-all solution.
  • Revise Outdated Thinking - Based on their experience with conventional loans, consumers may believe a fixed rate is preferable to an adjustable rate HECM. But a fixed rate HECM can be more costly and potentially offers less flexibility than an adjustable-rate mortgage (ARM) HECM loan. In addition, lenders may now offer reverse mortgages with minimal upfront costs, which can make this loan attractive for more short-term needs.
  • Clarify Confusing Concepts - Although borrowers need to pay off existing debt on their homes to get a reverse mortgage, by transferring this debt to the reverse mortgage loan obligation, they are only deferring the repayment of these mortgage payments (with interest) until they die or move out. Borrowers must also meet all of their other reverse mortgage obligations including making timely property tax and homeowners insurance payments.
  • A Holistic Approach - Borrowers may benefit from involving other professionals in decision-making as appropriate, including legal, financial and tax advisors. They may also consult with medical advisors to provide input on health challenges that could make it hard to stay at home.
  • Exit Strategy -Reverse mortgage borrowers can stay in the home as long as they wish. But sooner or later the loan will have to be repaid. Financial advisors, senior advocates, housing specialists and other experts will need to work together to develop scenarios with appropriate exit strategies to guide consumers through these transitions.
  • Now or Later? - Whether to integrate home equity into ongoing retirement financing or to preserve this asset for major unexpected expenses in the future is a common question. Homeowners may choose to use home equity to pay for home repairs, or to pay off tax burdens. In some situations, a reverse mortgage may help stabilize a difficult financial situation such as forestall a foreclosure.
  • More Than a Last Resort? - Using home equity as more than a "last resort" can help keep cash shortfalls from becoming major problems, but the growing trend toward borrowing at earlier ages also raises concerns. Aging Baby Boomers, likely to live longer than their parents, may not have saved enough for their additional retirement years. Consequently, seniors they may need to preserve a portion of their home equity.

Info: Changing Attitudes, Changing Motives: The MetLife Study of How Aging Homeowners Use Reverse Mortgages, and The Essentials: Reverse Mortgages can be downloaded from www.MatureMarketInstitute.com. They can also be ordered through   the MetLife Mature Market Institute website, or by e-mailing: MatureMarketInstitute@MetLife.com or "snail mail" to MetLife Mature Market Institute, 57 Greens Farms Road, Westport, CT 06880.

Login to read the full story or Subscribe now!

Other Recent Stories

Funding goes to programs helping to make the game of golf more accessible to people with disabilities.
The U.S. Commission on Civil Rights, an independent agency charged with advising Congress and the president, has launched a two-year investigation into civil rights practices at several federal agencies under the Trump administration.
Senate Majority Leader Mitch McConnell (R-KY) late this past week unveiled the Senate's health care bill. Similar to the House bill, it would effectively eliminate the Affordable Care Act’s (ACA) Medicaid expansion in 31 states and the District of Columbia, leaving millions of low-income adults uninsured.
The Centers for Medicare & Medicaid Services has decided that accessories for group 3 power Complex Rehab Technology (CRT) mobility products will continue to remain exempt from the application of competitive bidding derived pricing for Medicare beneficiaries. The announcement marks a big win for home medical equipment (HME) providers who furnish CRT products.
The U.S. Supreme Court has agreed to hear oral argument this fall in Gill v. Whitford, offering the Justices their first opportunity in more than a decade to weigh in on the constitutionality of partisan gerrymandering. The high court’s decision in the case could impact congressional maps in around half a dozen states and legislative maps in about ten states, as well as have major implications for the next round of redistricting after the 2020 Census.
This week we focus on House Majority Leader Kevin McCarthy (R-CA). McCarthy is the least-tenured majority leader in the history of the House of Representatives. He also is among the best-financed members, with Wall Street venture capitalists, insurance companies, and pharmaceutical manufacturers topping the list of industries contributing to his campaign war chest.
Researchers at the University of Southern California (USC) have uncovered evidence of racial differences in how family relationships -- both positive and negative -- impact the biological aging of older adults, especially older African Americans.
A new study from a researcher at the University of California provides a compelling portrait of how Medicaid would have looked had per captia caps been in place for a dozen years beginning in 2001 -- and it isn’t a pretty picture. The study focuses on how home and community-based services (HCBS) spending would have been impacted under a per capitia caps regime from 2001-2013.
More than 60 million Americans are affected by the so-called “justice gap,” including approximately 7 million rural residents, 6.5 million seniors, more than 1.7 million veterans, and 11.1 million people with disabilities.
In its review, GAO found 28 examples of advertisements that linked supplement use to treatment or prevention of memory-related diseases – a claim generally prohibited by federal law.