Despite this record-high increase in equity for seniors’ homes, the popularity of reverse mortgages remains low for older Americans. In 2020, only 42,000 home equity conversion mortgages (HECMs) were sold – dropping by as much as half from 2010, according to data from the US Department of Housing and Urban Development (HUD) obtained by the Center for Retirement Research (CRR) at Boston College.
Citing a 2017 report from the Consumer Financial Protection Bureau (CFPB), the CRR noted that one possible reason for the decline is that reverse mortgages are not in line with the plans many seniors may have for their properties.
“A reverse mortgage reduces the equity homeowners have in their house,” the report said. “Homeowners who wish to sell their homes after taking out a reverse mortgage are particularly at risk because the loan balance is likely to grow faster than their home values will appreciate. This could limit options for moving or handling a financial shock.”
What should homeowners consider before taking out a reverse mortgage?
A reverse mortgage is designed for retirement-age homeowners who have either paid off their mortgage or built a lot of equity in their homes. This type of mortgage is targeted at homeowners who want tap into their home equity to access a fixed monthly payment, line of credit, or a combination of both, without losing ownership of their properties.
Reverse mortgages are often tax-free, and repayments are deferred until the homeowner moves out, sells the home, is unable to pay property taxes or insurance, or passes away. After which, the property is sold, and any excess goes to the owner or their heirs.