Posts Tagged "home equity"
April 14, 2022
Her Home Purchase Builds Children’s Wealth
There is joy in owning one’s first home. But homeownership has a deeper meaning for Robin Valentine.
Unlike her late mother, who was unable to leave any money to her children, Valentine will one day pass on the house that she purchased last September to her three children.
“I told my children, ‘If anything happens to me, and you don’t want to stay here, that’s fine. Take the money [from selling the house] and put it towards your home,’ ” she said. “It’s more than just me buying this house and living in it. It’s for me to leave a legacy.”
Valentine, who is 52, is accomplishing something that historically has proved difficult for African-Americans like herself: building intergenerational wealth.
For most workers, a house is their largest source of wealth. But the homeownership rate in the Black community is dramatically lower than for whites for reasons ranging from mortgage discrimination to insufficient income. When Black people do own houses, their properties hold significantly less wealth. The typical Black homeowner had $4,400 in home equity in 2020, compared with $67,800 for white homeowners.
With sheer determination, Valentine, an administrative assistant in academic services at the University of Massachusetts-Boston, overcame numerous obstacles to buying a house.
She attended college but had to drop out because she couldn’t afford it. It took about eight years to pay off $20,000 in student loans and credit card bills after a divorce from an abusive marriage. For seven years after that, she saved for a down payment by resisting any purchase that wasn’t essential. Once a year, she would ask the bank for a mortgage preapproval to see if she could afford a house yet.
“I just kept saving every little penny I could save,” she said.
Last July, Valentine paid $275,480 for a three-story townhouse in Boston’s Dorchester neighborhood. Her mortgage payment is $1,635 – not much more than she paid to rent a subsidized apartment under the federal Section 8 program.
She got big assists from two government programs and a non-profit. One program is overseen by the U.S. Department of Housing and Urban Development (HUD). Under HUD’s Family Self-Sufficiency Program (FSS), the non-profit Compass Working Capital partners with local housing authorities to help tenants like Valentine get a foothold in the housing market. …Learn More
March 31, 2022
Using Home Equity Improves Retiree Health
Retirees spend $1,500 more per year, on average, for medical care after a diagnosis of a serious condition like lung disease or diabetes.
Often, the solution for individuals who can’t afford such big bills is to scrimp on care or avoid the doctor altogether. But older homeowners can get access to extra cash if they withdraw some of the home equity they’ve built up over the years.
While the money clearly provides financial relief for retirees, a new study out of Ohio State University finds that it is also good for their health. Every $10,000 that Medicare beneficiaries extracted from their homes greatly improved their success in controlling a chronic or serious disease.
Among the retirees who had hypertension or heart disease, for example, one standard used to determine whether the condition was under control was whether blood pressure levels stayed below 140/90, which the medical profession deems an acceptable level. The people who tapped their home equity were more likely to stay below these levels than those who did not.
This is one of several studies in recent years to tie financial security to home equity, a resource many retirees are reluctant to tap. A study in 2020 found that older homeowners were less likely to skip medications due to cost after they had extracted equity through a refinancing, home equity loan, or reverse mortgage.
But this new research is the first attempt to connect the strategy to retirees’ actual health. The analysis followed the health of more than 4,000 homeowners for up to 15 years after they were diagnosed with one of four conditions – lung disease, diabetes, heart conditions, or cancer. …Learn More
February 17, 2022
Mortgage Payoff Frees Up Money for Meds
Paying off the mortgage frees up a lot of money for other things. The homeowners in one study splurged on big-ticket items.
Older homeowners, however, are adding another priority: medications.
After a mortgage payoff, workers and retirees ages 50 to 64 spent 50 percent more on prescription drugs in a comparison with households who had no major changes in their monthly housing costs, according to a new study by Harvard’s Joint Center for Housing Studies and funded by the U.S Social Security Administration.
The mortgage is typically a homeowner’s largest monthly expense. If medication spending rises when this big bill is eliminated, it supports the argument that some aging homeowners who are still carrying a mortgage may be choosing housing over necessary medical care.
This research is particularly relevant at a time older Americans are entering retirement with more debt. In 2016, four in 10 retirees had a mortgage – double the share in the late 1980s.
Not surprisingly, the researchers found some indication that lower-income workers and early retirees benefited more from eliminating their monthly payments. They have difficulty paying even for essential expenses, and the increase in their prescription purchases after paying off the home loan appeared to be larger than for higher-income groups with fewer constraints.
The researchers split the homeowners into two age groups – under and over 65. While homeowners under 65 sharply increased their drug spending after the mortgage payments ended, the Medicare beneficiaries did not.
The level spending after Medicare eligibility indicates that the program relieves some of the pressure on the family budget, the researchers said. Medicare also provides an average $5,000 annually to subsidize low-income retirees’ medications under the Low Income Subsidy program.
But for older homeowners who are too young to get Medicare but are still paying a mortgage, the study “raises serious concerns for health care quality and the costs to treat poorly managed conditions,” the researchers said.
To read this study, authored by Christopher Herbert, Jennifer Molinsky, Samara Scheckler, and Kacie Dragan, see “Older Adult Out-of-Pocket Pharmaceutical Spending after Home Mortgage Payoff.”
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
May 25, 2021
Retirees Intent on Leaving Homes to Kids
Every year, older homeowners leave billions of dollars worth of the wealth locked up in their houses to their adult children.
This is a paradox if one considers that home equity is one of retirees’ primary assets and could be a crucial source of income for people who are “house rich and income poor.” Retirement experts searching for an explanation have long wondered whether the deceased had intended to leave the house to family or simply died before they were able to cash in on the equity and spend it.
A new study has an answer: retirees have every intention of letting family members inherit their homes. The people in the study who expressed a stronger desire to leave an inheritance of at least $10,000 were much less likely to sell their homes before they died – with the intention that the house would be part, if not all, of that inheritance.
The foundation for this study is a precise estimate of the housing decisions being made in the final two years of life from a survey of older Americans. The researchers counted as many people as possible, including the deceased – their final living status came from interviews with next of kin – as well as people who continued to be homeowners after going into hospice or a nursing home.
The homeownership rate in the older population peaks around age 70 and starts falling precipitously after 80. But when the elderly in the study died, about half of them still owned their homes, while the other half had sold them and moved into rental housing.
At younger ages, the retirees had been asked to estimate the probability, from 0 (no chance) to 100 (definitely), that they would leave a financial inheritance. Based on this information, the researchers found that those who had said they had a high probability of leaving an inheritance remained in their homes.
There is also a financial advantage to the owner of not selling the house to avoid the capital gains tax, especially if the price appreciated dramatically during their lifetimes. The researchers didn’t account for this incentive in their analysis.
But they did find that the desire to leave a bequest is so compelling that parents held on to their homes even after predicting they might need to pay for nursing home care within a few years. …Learn More
May 20, 2021
Black Millennials’ Wealth is Sliding
It’s still too early to assess the full impact of the COVID-19 downturn on Millennials’ economic fortunes. But Black Millennials had already lost a lot of ground before the pandemic hit their communities hard.
Their wealth in 2019 was just half of what would be expected based on how much wealth their parents’ generation had at the same age.
Other Millennials are also running behind previous generations, but only slightly. And their situations have improved in recent years, while Black Millennials are sliding farther and farther behind.
The Federal Reserve Bank of St. Louis called the situation “alarming” in its new report.
The oldest Millennials are turning 41 this year. But in 2019, the typical Black family born in the 1980s had only $5,000 in their savings accounts, 401(k)s, home equity and other wealth – compared with the roughly $11,000 they would be expected to have based on the previous generation. Hispanic Millennials had $22,000, and whites had $88,000.
Black Millennials are struggling for a few different reasons, said Ana Hernández Kent, a senior researcher for the St. Louis Fed’s Institute for Economic Equity. Homeownership is a major source of wealth for most Americans, but only a third of them own homes – half the rate of their white peers.
Student debt is another big issue, because African-Americans who borrowed money for college either didn’t graduate or used the loans to attend lower-quality for-profit colleges at disproportionate rates. Their college experiences haven’t always translated to earnings that are high enough to justify the debt taken on to pay for an education.
“They’re over-leveraged,” Kent said. “Just over a third of Black Millennials with at least a two-year degree are more likely to say the costs of college are larger than the benefits.” …Learn More
September 8, 2020
A Laid-off Boomer’s Retirement Plan 2.0
Jennifer Lee wanted to work until 70 to max out her monthly Social Security checks – at least that was the plan before she was laid off three years ago from a Washington D.C. church.
The church’s newly hired pastor “decided he wanted a whole new staff,” she said. “I felt to a degree he was entitled to do that,” she said – except that “he was only eliminating people on the staff who were over 60.”
She wasn’t having any luck finding a new job and felt that her only choice was to sign up for Social Security at 63½ to pay her bills. Eventually, Lee, a one-time nurse and medical administrator, landed a nice part-time job as a Jack-of-all-trades in an oral surgeon’s office. Post-pandemic, her duties have expanded to include overseeing the COVID-19 safety protocols.
The recession is putting many baby boomers in a predicament similar to Lee’s: a layoff has derailed their plans to work full-time to build up their retirement savings. Since March, the unemployment rate for Americans who are at least 55 years old has more than tripled, to 9.7 percent in June.
“Most older people, when they’re laid off, will take Social Security right away,” but “that’s not their best short-term solution,” said Wendy Weiss, a Cambridge, Mass., financial adviser. She urges them to find other ways to generate income or reduce expenses, because delaying Social Security increases the monthly check by 7 percent to 8 percent for each additional year the benefits are postponed.
But, Weiss acknowledges, the recession is putting growing numbers of unemployed boomers in situations that aren’t easily solved. “It’s not going to be pretty,” she said about the next few years.
Lee, who is 65, was fully aware she should have postponed her Social Security. But it took her more than six months to find her current job, and she didn’t have any unemployment benefits to tide her over, because church employers don’t usually pay into state unemployment insurance funds. She wasn’t old enough for Medicare at the time of her 2017 layoff either.
“I waited five months to apply for Social Security. I waited as long as I could,” she said.
She sees a problem not in the difficult decisions she’s had to make but in a shortage of policies for older workers like herself, who may be more vulnerable to layoffs and also can have a tougher time finding a new job even in an expanding economy. …Learn More