According to a new study from Boston College's Center for Retirement Research, a third of retirees get 90 percent or more of their income from social security. For most people, that's not enough income to provide a relaxing retirement. What baby boomers may not realize is that, combined, they have more than $12 trillion in home equity. And that number has been quickly climbing. The value of these homes have risen in the past twelve quarters, according to the National Reverse Mortgage Lenders Association. Currently, these homes are valued at just one percent below the all time high in quarter four of 2006.
Americans age 62 and older may want to tap into that home equity via a reverse mortgage. Reverse mortgages take part of the equity in a home and convert it into payments to the homeowner. According to the Federal Trade Commission, reverse mortgages are popularly used by people who want to pay off their mortgage, supplement their income or pay for healthcare expenses. According to a survey by MetLife, two-thirds of borrowers are using the reverse mortgage to pay down debt (including conventional mortgage debt).
Reverse Mortgage Statistics
Senior citizens may be looking for more money outside their homes when the answer lies within. The National Reverse Mortgage Lenders Association recently revealed that 920,000 senior households have taken a reverse mortgage. For 2014, there were $6.3 billion in reverse mortgages opened, $127,000 was the average principal limit and an average interest rate of 3.15 percent, according to the U.S. Department of Housing and Urban Development. The most reverse mortgages came out of California (7,912) and Florida (3,728).
MetLife has revealed age information of reverse mortgage participants. People are securing a reverse mortgage nearly as soon as the option becomes available. The average borrower is just 71.5 years old and one in five borrowers are between age 62 and 65. Age 62 is the earliest anyone may apply.
However, there are many unpleasant reverse mortgage statistics. According to the National Center for Policy Analysis, 9.4 percent of reverse mortgages are at risk of default. That's nearly double the default risk of ordinary mortgages. To keep this number from increasing, reverse mortgage hopefuls are required to meet with a member of an independent government-approved housing counseling agency. This is because, after a recent Government Accountability Office audits of 15 reverse mortgage lenders, it was reported that none of the lenders properly explained the rules to customers. According to the Federal Bureau of Investigation, "Unscrupulous loan officers, mortgage companies, investors, loan counselors, appraisers, builders, developers, and real estate agents are exploiting reverse mortgages to defraud senior citizens." It's a primary housing concern for the FBI.
Counseling is also required because the Federal Housing Administration insures reverse mortgages. If a borrower defaults on the loan, the taxpayer must foot the bill. Reverse mortgages can be risky but the government still insures them.
Mid-way through 2015, the U.S. Department of Housing and Urban Development made reverse mortgage requirements more rigorous. Homeowners must now prove they have sufficient income to keep up with the property: taxes, utilities and insurance. It's harder to get a reverse mortgage than in the past, but this also means the number of people who default will likely shrink. Perhaps it's not that reverse mortgages are inherently risky, maybe it's just that they aren't very well policed yet.
If borrowers change their mind about this mortgage, there is something called a three day right of recession. This means the loan can be cancelled for any reason up to three days after the loan is signed. The exact process of cancelling the loan should be explained at closing.
As with credit cards, there's nothing inherently evil about reverse mortgages. Borrowers just need to understand the dangers and keep up with the agreement. The number of defaults should shrink as this mortgage type becomes better regulated. The reverse mortgage statistics have been aggregated. Now decide if a reverse mortgage is right for you.