The wealth of older Americans continues to grow and it’s actually worth a lot more than you think. But you won’t find it in many bank accounts or savings, pension funds or hedge funds – even though you will find plenty in those avenues. Rather, you will find it home equity, where experts say an estimated $5.38 trillion has yet to be tapped, according to recent data from the National Reverse Mortgage Lenders Association (NRMLA).
U.S. homes increased in value by an estimated $140 billion this past year, and spurred reverse mortgage lending to new, unprecedented heights as older Americans turn to home equity to secure their quality of life, and avoid tapping their savings just to enjoy their golden years.
From 2014 to 2015, RMMI gained 8.1%; a very close semblance to the 7.8% it gained from 2013 to 2014.
“Significant gains in senior home equity are adding stability to the traditionally three-legged retirement funding stool of savings, Social Security, and pensions,” wrote NRMLA President and CEO Peter Bell. “For retirees leaving the workplace with a defined benefit plan, home equity is a fourth leg of the stool, available to tap when needed,” Bell added. “For the millions of seniors without a pension, home equity is a valuable resource and can be an integral part of their retirement funding strategy.”
Reverse mortgages are becoming an increasingly popular option for older Americans, who wish to secure their quality of life without accessing savings funds, bonds, CDs or other investment and savings tools.
They are based upon the existing equity in the home and do not require an income or credit score, but do have some simple criteria that must be met; like showing the ability to maintain the home, pay taxes and insurance, and undergoing a third-party credit counseling session.
A reverse mortgage differs from a conventional home mortgage in the sense that no payments are made until after the borrower dies. At that point, the home is sold as part of the estate and the balance and associated interest and fees are tendered, with the remainder of any leftover funds going back to the estate and its heirs; with a catch-all that prevents the balance owed from exceeding anything greater than the current market value of the home at the time of the sale.