Posts Tagged "downsizing"
July 15, 2021
Retirees’ Home Equity: Useful but Unused
Many older Americans could benefit from using home equity for some much-needed income in retirement. But they have found many reasons not to.
Some want to preserve that housing wealth for their kids. Others don’t like the idea of cashing in on the equity if it means relocating to a smaller house or apartment or a less expensive neighborhood. They also have plenty of concerns about federally insured reverse mortgages, which are a way to extract equity but are complicated to understand.
These doubts, expressed in readers’ comments on recent articles, are persistent. But economists see things differently: home equity has great potential to ease retirees’ financial problems – after all, roughly $8 trillion of wealth is locked up in older people’s houses.
K. Friesen is a rare reader who agrees. She said a couple women in her family are proof of the benefits of deploying home equity. Thanks to a reverse mortgage, her aunt had “a roof over her head until she died at age 97,” Friesen wrote in a comment posted to “Tapping Home Equity – Retirees’ Relief Valve.” The article described a study demonstrating that using home equity is effective in reducing financial hardship.
Now Friesen’s mother has a reverse mortgage. “If she can squeeze every dime out of the little she has to have a better quality of life, I’m all for it.”
The advantage of reverse mortgages is that they don’t have to be paid back before the homeowner dies – the catch is that the borrower must continue to live in the house. A potential downside, as a reader noted, is that if a retiree has to sell the house and pay the loan back, the balance and accrued interest will have depleted equity.
But in fact, selling in retirement is an unlikely scenario. Nearly three out of four older workers either don’t move out of their current home or, when they retire, they sell their house, buy a new one, and stay put, according to research featured in “Most Older Americans Age in their Homes.”
Granted, these homeowners tend to be healthier than the older people who move around more. But Paul Brustowicz said even retirees who have health issues want the same thing as everyone else: to age in their own homes. …Learn More